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Since Friday, 27 October, sentiment in global stock markets has reversed sharply. From then, the US S&P 500 index has leapt by 10.7%, putting November on track to be the best month for stocks since July 2022. Alas, the UK’s FTSE 100 and FTSE 250 indexes are trailing their US counterparts.
Since 27 October, the UK’s blue-chip index has gained just 2.6%. Once again, shares in Britain’s largest listed businesses continue to underperform global rivals.
Meanwhile, the mid-cap index has jumped by 9.9%, putting it just 0.8 percentage points behind the S&P 500 in this period. Of course, some company shares have done even better.
For instance, FTSE 250 share Direct Line Insurance Group (LSE: DLG), has produced an impressive performance lately.
Direct Line runs aground
For the record, my wife and I bought this stock for our family portfolio in July 2022 at 200.3p a share. By 6 January 2023, the share price had jumped to 235.3p, delivering a decent paper profit on our purchase.
The stock then crashed spectacularly, losing almost a quarter of its value on 11 January. This followed an awful trading update in which the firm cancelled the dividend. On 27 January, CEO Penny James announced that she was stepping down.
At its 52-week low, this FTSE 250 stock slumped to a rock-bottom price of 132.11p on 7 July. However, the shares have rebounded strongly and currently stand 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 past month, this stock has surged by more than a fifth, easily beating the FTSE 250 and other market indexes. However, it has lost over 15% of its value in one year. Even worse, it has crashed by almost 43% over five years.
What’s changed?
Having bought Direct Line shares for their bumper dividend, I was sorely tempted to ditch this stock at multiple times during 2023. I’m glad I didn’t, as the share price is now trading at its highest levels since the 11 January crash.
This recent recovery has been driven by three key events. First, the shares were boosted by a positive half-year report, released on 7 September.
Second, at the same time, the group announced the sale of a non-core division for £520m in cash, plus up to £30m extra subject to earn-out provisions. Third, a positive Q3 trading update on 7 November also helped to support the stock’s comeback.
Any lessons for me?
As an older investor (I’m 55), I am much less reactive and headstrong than I once was. Sometimes, stock markets reward investors who don’t rush to sell, but take time to consider their position. On this occasion, this ‘wait and see’ patient approach worked, although it may not next time.
Finally, I don’t intend to buy any more of this FTSE 250 stock, plus I don’t intend to sell my Direct Line stake. Indeed, I will probably sit tight until the dividend is restored — fingers crossed!
