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Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I read somewhere recently that one should only invest in companies where it is possible to explain what they do to a six year old. This is perhaps a little unfair in the age of fast evolving technology where often the business model, let alone the product, of highly successful companies can be pretty difficult for even brainy adult analysts to get their heads around.
In the case of Quindell (QPP) it all ought to be fairly straight forward. It operates as a kind of back office to the auto insurance industry and get a little cut of every pound that you and I pay out in premiums.
Fairly straight forward right? Except that it seems to have found a way of doing it miles better and more efficiently than anyone else in a crowded and mature industry. It has also found a way of explaining how it does it in a language that is not quite English and not quite comprehensible despite containing many impressive words and phrases.
It may be that Quindell, for a whole host of reasons, is managing to buck the trend in the mundane field in which it operates: boldness, economies of scale, energy, technological know how etc and simply has an unfortunate inability to explain or to appoint advisors capable of explaining in plain English how it is that they are so smart.
Investors with memories should scroll back a few years and remember what was being said and written about the Innovation Group, the last plaything of Quindell’s Rob Terry. They should look at what happened there and why.
They might also look at what invariably happens to businesses that seem to effortlessly to trump rivals in mature and established industries. From the eighties I can think of Spring Ram (kitchens) Polly Peck (fruit transportation) Independent Insurance (insurance) Ashstead (plant hire) Jarvis (Business Services) Serco (ditto). With Quindell maybe it’s different this time…
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