Wed 09 Feb 2022

Investing - don't believe everything you read

Every day I receive a number of emails from "trade" publications (online magazines) that cover the financial planning and investment management industries.

One such email arrived today, and the following caught my eye.  Listed under "Investment Views" were a list of headlines.  These were the first two:

  • Scottish Mortgage: This bump in the road is worst time to sell
  • Opinion: There is more pain ahead for Scottish Mortgage

There are few certainties in life, but we can say for certain that one of them is going to be wrong.

Further down in the same email was the heading: "Stock Talk: Abrdn downgraded on management dilemma".

I mistook the phrase "management dilemma" to mean that the article was about a possible change of management personnel so I clicked through, keen to read the gossip on the global investment manager of £500bn+ which is based just down the road from me in Edinburgh (recall that Abrdn is the new name for the company that includes the investment management business of Standard Life).

However, the article was instead about an investment banking analyst downgrading their recommendation on Abrdn shares (currently 246p).  The analyst had been recommending that the shares were a "Buy", with a price target of 285p.  However, today they were reducing this recommendation to "Hold", with a price target of 260p.

For what it is worth, the "management dilemma" referred to in the headline was about whether in the future Abrdn management will prefer to continue acquiring other companies or instead to start a programme of share buybacks.  Serves me right for succumbing to the enticing headline!

The analyst went on to say: "Abrdn shares have disappointed during recent years, underperforming the UK index by 50% since December 2017 and 27% since December 2020."

So, in summary, we have:

  • Two investment professionals whose full-time job is to analyse and be informed on these matters, making totally the opposite recommendation on Scottish Mortgage, a popular investment trust
  • An investment analyst admitting that their "Buy" recommendation has been in place whilst the shares have fallen in value.  And following that share price fall he isn't now saying that the shares are very cheap, rather that be has been wrong all along in terms of what the shares are worth (in his opinion).

The point is not to take issue with the opinions of any of these individuals.  Rather, it is simply to highlight that even within the well informed (and well paid!) investment world there will always be a range of divergent views on any investment, and therefore they cannot all individually be correct.

In a sense, the lesson from this is the same as the one that applies every time you buy or sell shares in a company.  You may be selling because you think the share is going to fall in value.  Or you may be buying as you are positive on the share price outlook.  Whichever applies, the truth is that the person on the other side of the transaction typically has the opposite outlook.  For every buyer there is a seller, and vice versa.

You may think that you are smarter, savvier, and better informed than your opposite number.  But can that really be the case all the time?

It certainly isn't a magazine headline which would encourage "clicks" or go viral, but the investment truth is quite simple:

  • Be well diversified
  • Invest at the correct level of risk for you and your circumstances
  • Keep charges down as much as possible
  • Then sit back and enjoy the ride, and don't panic during the bumpy periods.

All our clients' investments are structured on the basis of this philosophy. 

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