Editor’s note: This article was first published in November 2016. The share prices it cites are as of then, such as buying at 4.40 and trading around 6.70. ArcelorMittal carried out a 1-for-3 reverse stock split in 2017, so these prices are not comparable with later quotes.
When we invest in the stock market, our business is not fortune-telling but the analysis of a range of factors. At the end of 2015 I named ArcelorMittal as my favourite to invest in through a DCA strategy, in other words averaging down, because the company had entered a downtrend.
ArcelorMittal went from being a recommended buy above 14 euros to being a stock to avoid below 5 euros (according to the same people who had recommended buying above 14), and the outlook for the company had not changed that much. Clearly, the company’s business had been hit by a number of factors that we analysed at the time, and its debt came under the spotlight, although in my view that debt was fairly well under control for a company like this. We are not talking about a penny stock but about one of the biggest steelmakers in the world.
After analysing the company, I decided that 4.40 euros a share was already a good buying price, bearing in mind that if it fell further, I would buy again to average down at key levels.
But unfortunately I am no fortune-teller (though I have tried), and my crystal ball doesn’t tell me exactly where share prices will bounce or when, so you have to adapt your investment strategy to your goal. And there is always a chance of getting it wrong.
When ArcelorMittal fell below 3.50 euros, I bought again. I remember that on a major investment forum where people were advising against investing in ArcelorMittal, I gave them my humble opinion and my reasons for recommending a purchase, telling them that at that price we had a pretty good margin of safety with this company.
On that forum, everyone was very clear about one thing, including the author of the article, an investor whose analyses I have sometimes followed. They were all going to wait for ArcelorMittal to reach one euro before buying, because in their view it would do what Sacyr and Gamesa had done (two Spanish listed companies whose shares sank to around one euro): it would touch the one-euro mark and then shoot up, so they would buy at 1 euro.
Once again I gave them my reasons why it was unlikely to fall as far as one euro. A few weeks later ArcelorMittal dropped below 3 euros, and I received several mocking emails along the lines of “Look, now you’ve got an even bigger margin of safety”, some of them with the odd “hahaha”. And one or two people gave me stock market lessons again, explaining my big mistake and telling me I should have waited for the price to reach 1 euro before buying. At that moment I thought: “Either I’m the idiot, or the idiot isn’t me.”
The fact is that I averaged down again below 3 euros, knowing that I might have to be patient in case the ArcelorMittal share price went even further wrong.
Things look clearer in hindsight.
ArcelorMittal ended up bouncing at around 2.60 euros, and today it is trading at around 6.70 euros a share, and I already have a stop-loss to sell at around 6 euros if it starts to fall. That is my margin of safety.
You can work out the return for yourselves. That is my gain on this investment, in which I took on a risk.
I didn’t use fortune-telling but common sense and investment analysis. That is our business.
Tip: always stay humble, because stock market results are not measured in the short term but in the long term.
Conclusion: To those people who were certain that ArcelorMittal was going to fall to one euro… could you tell us which number is going to win this year’s Christmas lottery (Spain’s big December draw)? I only ask so that I don’t buy the wrong tickets. Thanks!
Featured image: Borvan53, CC BY-SA 4.0, via Wikimedia Commons.
