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Mr. Market Hates Disappointments!

Cliff D'Arcy
June 28, 2012

When you follow the stock market as closely as I do and for as long (25 years), you become accustomed to extreme price drops. Indeed, it's a rare day when some share or another doesn't crash by, say, 25% or more in the course of a single day's trading.

Big dives
Even so, sometimes share-price falls can be dramatic, particularly at the small-cap end of the market. I've seen shares in some small companies -- notably those quoted on AIM (the Alternative Investment Market) -- plunge by 90% (or soar by more than 100%) in one morning.

Then again, this kind of wild, volatile price action is much less common at the mid-cap and big-cap end of the London market. When companies are valued in billions, rather than millions, their shares are highly liquid and tend to be considerably less volatile.

However, the past 12 months have seen many exceptions to the rule of "the bigger the company, the lower the share-price drops." Indeed, dozens of companies have seen their share prices hammered in 24 hours, usually after badly disappointing "Mr. Market."

Ten slumps for shareholders
What seems particularly evident this year -- in this age of sovereign insolvency and eurozone angst -- is how very unforgiving Mr. Market can be when company results or strategies prove below par.

For example, the table below lists 10 one-day slumps in the share prices of members of the FTSE 350 index. The bad news is that each of these slumps happened in a single day, leaving their owners nursing burnt fingers overnight:


Slump Date

Price Before (pence)

Price After (pence)

Slump (%)

Halfords  (LSE: HFD.L  )

May 31, 2012




Tesco  (LSE: TSCO.L  )

Jan. 12, 2012




Ocado (LSE: OCDO.L  )

June 26, 2012




Yule Catto

June 27, 2012




Mulberry  (LSE: MUL.L  )

June 14, 2012




Admiral  (LSE: ADM.L  )

Nov. 9, 2012





May 22, 2012





March 27, 2012




Cairn Energy

Feb. 6, 2012





May 16, 2012




Let's briefly look at each of these one-day share slumps in turn, from the smallest to the largest.

1. Halfords
At the end of last month, Halfords released weak final results for fiscal 2012, revealing falling gross margins, a 22% fall in basic earnings per share, rising net debt, and a frozen dividend. Mr. Market's response was to slap down the bike retailer's share price by nearly an eighth (12.3%).

2. Tesco
How the mighty have fallen. For 20 years, supermarket giant Tesco could do no wrong, as it grew to capture 1 pound in every 8 pounds spent on British high streets.

Then, on Jan. 12, the grocer unveiled an unexpected profit warning after disappointing Christmas trading. Mr. Market responded by snipping 14.3% off its share price. Despite a small fall in U.K. sales, Tesco still controls 30% of the grocery market, so I expect its shares to recover over time.

3. Ocado
I've never been convinced by Ocado's business model and the long-term sustainability of its earnings.

Hence, I wasn't at all surprised on Tuesday when the release of its latest half-year results saw its shares slide by 17.6%. After a decade of losses, Ocado has made a six-month profit of 200,000 pounds, which is tiny for an FTSE 250 firm. In addition, net debt is rising steeply, which must be a worry.

4. Yule Catto
Wednesday's candidate for biggest one-day faller in the FTSE 350 was specialty chemical maker Yule Catto. This trading statement warned of "challenging trading conditions" that have "continued through the remainder of the first half of the year." With demand "subdued in Europe and North America," Mr. Market decided to slash the firm's share price by almost a quarter.

5. Mulberry
The maker of fancy handbags and other upmarket accessories released its FY 2012 results on June 14, reporting revenues up 38%, profit before tax up 54%, and a 25% dividend hike. Despite these sparkling figures, Mr. Market worried that Mulberry's go-go growth was slowing, so he instinctively sliced 22.5% from its shares.

6. Admiral
One of the U.K.'s best-known providers of car insurance with three million customers, Cardiff-based Admiral has gone from strength to strength. Alas, on Nov. 9 last year, Mr. Market gave its interim results the thumbs-down, wiping 25.6% from the insurer's share price. Despite a 30% increase in Admiral's turnover, rising claims costs made Mr. Market nervous, hence his savaging of its share price.

7. HomeServe
For more than a decade, I have been a huge critic of HomeServe and its home emergency plans, which offer very poor value for money. Hence, I was unsurprised to see the firm suffer yet another share slump, this time after releasing its final results for fiscal 2012.

Thanks to a regulatory run-in with City watchdog the Financial Services Authority, HomeServe's share price has been smashed from a peak of 535 pence to a mere 150 pence today. Frankly, that's the price of getting caught after ripping off consumers for years.

8. CPP
CPP -- known for its card protection plans that provide emergency support and protection against fraud when plastic cards are lost or stolen -- is another firm that has been take