Many investors are probably feeling a twinge of worry over their shareholding in Medibank Private Ltd (ASX: MPL) this afternoon.
It's back at $2…maybe I should sell…What if it falls further??
Shares in the health insurer have fallen 1% to $2 so far in today's trade, reflecting a 7% loss for the year.
Many investors have probably gone slightly backwards since November when Medibank debuted at $2.15, while retail investors in the Initial Public Offer (IPO) received their shares for $2 and are effectively flat.
It is uncomfortable owning shares that are going backwards and even more so when you remember that over 50% of IPOs trade below their offer price in their first year out – meaning there's a reasonable chance Medibank will, in fact, fall further.
However, investors should also use this as an opportunity to compare their initial 'investing thesis' (reasons why you bought shares) from November 2014 to the state of play currently. When you first bought Medibank, you probably said something like this:
- Medibank is a market-leading insurance company with powerful brands, strong market presence and experienced executives
- Likely to benefit from government-legislated increases in health insurance premiums over time, resulting in slow but steady revenue increases
- Pays a dividend that should increase over time thanks to premium increases + cost savings
- Cost savings likely to be achieved as a result of the transition from government to public ownership
- Risks from competitors like Bupa and online-only health insurance providers
- Profits could be 'lumpy' depending on the claims made each year
Does that sound about right?
Next, revisit February's half-year results release
- Revenue and profits went up
- Management costs fell
- Guidance to expect continued headwinds in the health insurance sector
That wasn't too bad, was it?
Importantly, investors haven't seen anything yet to disprove their thesis about the worth of a Medibank investment. That means that if you thought Medibank was a buy at above $2, it should appear a whole lot cheaper at today's prices or below.
Some in the market look to be selling Medibank in the lead-up to its results announcement later that week, hence recent weakness in its price. That's not long-term thinking, and it's not going to set you up for a comfortable retirement.
