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Since Friday, October 27, sentiment in global stock markets has reversed dramatically. From then on, the U.S. S&P 500 The index is up 10.7%, putting November on track to be the best month for stocks since July 2022. Unfortunately, the UK index FTSE 100 and FTSE 250 The indices are lagging their US counterparts.
Since October 27, the UK’s blue-chip index has gained just 2.6%. Once again, shares in Britain’s largest listed companies continue to underperform their global rivals.
Meanwhile, the mid-cap index has risen 9.9%, putting it just 0.8 percentage points behind the S&P 500 in this period. Of course, some companies’ stocks have done even better.
For example, the FTSE 250 stock Direct Line Insurance Group (LSE: DLG), has had an impressive performance of late.
Línea Directa runs aground
For the record, my wife and I bought these shares for our family portfolio in July 2022 at 200.3pa. On 6 January 2023, the share price had risen to 235.3p, generating a decent paper profit on our purchase.
The stock then plummeted spectacularly, losing almost a quarter of its value on January 11. This followed a terrible trading update in which the company canceled the dividend. On January 27, CEO Penny James announced that she would resign.
At its 52-week low, this FTSE 250 stock plummeted to a low of 132.11p on July 7. However, the shares have recovered strongly and currently sit at 188.55p, valuing this business at £2.5bn.
Here’s how the stock has performed over six different periods:
| Five days | +5.8% |
| One month | +20.4% |
| Six months | +12.5% |
| 2023 to date | -14.9% |
| One year | -15.4% |
| Five years | -42.5% |
In the last month this stock is up more than a fifth, easily outperforming the FTSE 250 and other market indices. However, it has lost more than 15% of its value in a year. Worse still, it has plummeted almost 43% in five years.
What has changed?
Having bought Direct Line shares for its excellent dividend, I was very tempted to get rid of this stock on several occasions during 2023. I’m glad I didn’t, as the share price is now trading at all-time highs since the fall of January 11.
This recent recovery has been driven by three key developments. First, the stock was boosted by a positive semi-annual report, released on September 7.
Secondly, at the same time, the group announced the sale of a non-core division for £520m in cash, plus up to a further £30m subject to profit provisions. Third, a positive third-quarter trading update released on Nov. 7 also helped support the stock’s recovery.
Any lessons for me?
As an older investor (I’m 55), I’m much less reactive and stubborn than before. Sometimes stock markets reward investors who don’t rush to sell, but take time to consider their position. This patient “wait and see” approach worked this time, although it may not work next time.
Finally, I do not intend to buy any more shares of this FTSE 250, furthermore I do not intend to sell my stake in Direct Line. In fact, I’ll probably stay put until the dividend is reinstated – fingers crossed!
