Burford Capital Ltd (BUR)

Burford Capital Ltd (BUR) is one stock that I’m still unsure about as it’s very difficult to understand how the business is doing, and therefore understanding its long term profitability proves a problematic task.

To give context, Burford Capital is listed on the FTSE AIM 100 and is an investment firm that specialises in generating finances for litigation, along with associated activities such as advisory services in the legal field.

WOODFORD

Though the stock isn’t in the LF Woodford Equity Income fund, it is held in another Woodford Investment fund, Woodford Patient Capital Trust. This is a closed-ended fund, aimed at delivering long term growth. However, due to being under the same management in Woodford, the firm could suffer indirectly from a decrease in sentiment towards Woodford’s investment approach.

VOLATILE

The business has done extremely well in the long term, recording a return of 691% since 2016. However, the stock has been particularly volatile in the shorter term, for example dropping 24% over the 10 month period between September 2018 and June 2019.

Though I suggest ignoring short-term fluctuations and focusing on long-term horizons, I think it is better to concentrate on stocks that are growing at a steady rate with small fluctuations versus more volatile stocks.

BLACK BOX

As mentioned, it’s very difficult to tell how the business is doing. Due to the nature of the business the company has to keep all legal cases confidential. Therefore, transparency of what current contracts the business has and how these will lead to cash and profit generation is almost impossible. As a result, this creates a black box in which investors can’t see what is happening. 

From a private investor perspective who can’t talk to management and have to rely on public data, this makes predicting how the business will do going forward almost impossible. This is why I’m currently avoiding this stock but I could see it continuing to perform well going forward due to market sentiment.