Investing is never easy and we’ve certainly had some setbacks with our stock selections amid bouts of negative news. As a result, we will include stronger risk warnings on investment ideas from now on.

While many of our investment ideas have gone on to deliver superior returns, we have also had a few selections go wrong over the last six months and we aren’t alone.

Even professionals get it wrong with fund managers, analysts and other experts sometimes caught out when certain companies produce negative news. It’s a stark reminder of the risks involved with investing in the stock market.

Our articles are based on information known at the time of writing. When we’re buying into a company that’s already flagged negative issues, we’re making a judgement that those issues can
be quickly fixed.

Sometimes they take longer than expected to be resolved and trigger profit warnings. The latter can also happen when a company admits it’s been keeping problems under wraps in the hope that they could be fixed (and ultimately they haven’t been).

If you feel there are still major risks to an investment case, steer clear until events change.

WHERE DID WE GO WRONG?

Quite frankly, our timing on Micro Focus (MCRO) wasn’t good. Our ‘buy’ rating earlier this month was based on the view that the shares had been oversold following disappointing figures in January.

We called it wrong as the stock fell a further 60% upon a profit warning on 19 March. The issues mainly stemmed from the $8.8bn acquisition of HPE’s software assets.

As AJ Bell investment director Russ Mould notes: ‘Large acquisitions are inherently risky as they come with integration challenges. Micro Focus appears to have underestimated these challenges and is now suffering.’

Until there are signs the company is getting on top of this situation it makes sense to avoid the stock.

Shares in convenience foods manufacturer Greencore (GNC) slumped on 13 March after management downgraded 2018 earnings guidance. We originally said to buy the shares last October.

Greencore blamed increased losses in its legacy US factories and a delay in new business wins across the pond, as well as a currency headwind from the sterling/US dollar exchange rate.

While Greencore now looks cheap, margins and cash flows have come under pressure over the past three years. Investor confidence in the US opportunity and management’s ability to deliver a positive result is waning. (TS/DC)

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