I’ve been thinking about how well I might have done if I’d bought Lloyds Banking Group (LSE: LLOY) shares at their low point in the FTSE 100 crash of 2020.
That would have meant buying in September that year. In my birthday week, in fact. I’m no good at market timing, but what a gift that might have been.
No timing here
I’m not trying to say that all we need to do is buy at the bottom. I mean, that’s obvious. but the bottom is usually a hard thing to find.
Yet I find it valuable to look back and ask ‘what if?’ for a couple of reasons.
But first, how much would I have now if fortune had smiled on my timing?
Well, from a share price that dipped below 25p, I’d be sitting on a 71% gain. Oh, and dividends would have taken my profit up to 90%.
That wouldn’t have been a bad result.
Things to learn
But Lloyds has been among the worst FTSE 100 performers in 2023. In fact, inflation and interest rates have hit banking and other financial shares quite hard.
So maybe there’s a lesson here on what to do when we suffer a big crash. Maybe we should just buy any old stocks?
Never mind looking for the best, just spread our money across anything that’s fallen, and the rubbish will rise along with the gems?
I wouldn’t actually do that. But it does suggest there’s less risk buying during/after a crash than in a bull market.
What next?
After a three-year gain of 90%, it would be tempting to cash in and pocket my profit. If I didn’t, maybe Lloyds shares would slump again tomorrow and I’d end up losing.
But here’s my second lesson.
Never mind the price I bought at and how much I’m up or down on an investment. Those mean nothing.
Maybe I’d have turned my £10k into £19k in a short time. But that shouldn’t guide my judgement now.
All that matters is the valuation of the stock today, when seen with a long-term view.
Long term
We need to remember that a share price’s past doesn’t tell us anything about its future.
No, what counts is the underlying performance of the company itself, and its outlook.
And on that, Lloyds share still look like a buy to me, for investors who can see past the short-term risk.
That’s all about inflation, interest rates, and the potential for bad debts. Lloyds, like the rest of the banking sector, has had to set cash aside to help cover the dangers.
Valuation, valuation
What we’re looking at here is a stock on a forward price-to-earnings (P/E) ratio of under six, less than half the FTSE 100 average. And it looks set to deliver a 6% dividend yield.
Oh, and Lloyds is buying back its own shares too, which shows confidence from the board.
So no, never mind what’s happened since the crash. I think I’ll buy more Lloyds shares when I have the cash.
