Narcissistic capitalism; do you only invest in what you love?

Iona Bain

As you settle in to binge on a Netflix box-set tonight, pick up your phone to hail an Uber or take to Snapchat for a bit of mindless fun, an understandable thought might cross your mind.

Should I invest in this stuff? After all, if I love this product/service/whatever the hell it is so much, surely others must feel the same? If so, the future for this company is bright and I might be able to ride on its coat tails for the purposes of improving my financial future.

Now, I’m just a humble blogger. While I spend a good deal of time looking into this stuff so you don’t have to (you’re welcome), I can’t really tell you what to do without knowing how much money you’ve got, what your attitude to risk is like and what you’re actually investing for. Also, just a small point here but…I’M NOT A FINANCIAL ADVISER!

But I can put some facts and interesting viewpoints across for you to blend up in the Nutribullet of your investing process. Whatever comes out could either be a juicy, sugary smoothie that’s very appetising but should be drunk with caution (i.e. a selective pack of glamour stocks) or a health drink packed with veggies that’s a bit challenging but good for you (a boring portfolio of steady Eddies that inspire zero excitement). Or a bit of both.

Snap decision

RT pundit Max Keiser recently warned about the dangers of “narcissistic capitalism”. He deplored the rush of young investment into Snapchat’s new share issue (or IPO) in the US, with many pulling their existing funds out of Facebook to back an app that is much more au courant (how many times have I heard that Twitter is on the way out?) But parent company Snap Inc reported massive losses last week,. User growth continued to slow down in the first three months of the year, just a week after Facebook reported solid first-quarter results with double-digit revenue growth (seen consistently since its own IPO).

There is a myth circulating among the oldies (no offence Max!) that millennial investors are obsessed with companies they personally love or believe to be “ethical” (whatever this phrase now means).

This is true, but only up to a point. Young investors can also be very hard-nosed if they see an opportunity to make a quick buck, as I reported here. Young peeps are also increasingly getting into property by proxy, going down the P2P and crowdfunding route if they can’t afford to raise a deposit. This involves a leap of faith into the dry universe of buy-to-let, commercial property and bridging loans – none of which is in the average young person’s wheelhouse. You can read more about this trend here.

And actually, investors of all ages fall prey to the investment beauty parade, with more than half admitting in a recent Investec survey that they favour well-known supermarkets and banks. But yes, young investors are probably more inclined than most to ponder Netflix or Disney as an investment opportunity. Why else would Moneybox, a relatively new investing service for millennials, mention such shares on their website?

MONEYBOX

Invest in what you know?

A wise piece of advice is “invest in what you know”. So you could argue that looking at firms and services you already use and then considering the merits of investing in them is a good starting point. But investing in what you know only works when you ACTUALLY get to know the company in question, and not turn the other cheek when you come across information that would give any reasoned investor pause for thought. It also doesn’t invalidate the two pillars of investing that you can’t really knock; the need to diversify and be in it for the long-haul rather than hope to cash in after a few months or years.

You remember my (slightly stretched) Nutribullet analogy from a few paragraphs back? You can actually put a name to the two types of investing smoothies I mentioned. The selective, sexy stocks approach is what professional investors might view as a “high conviction” and “growth” strategy. It’s the kind of approach pursued by the likes of investment trust giant Scottish Mortgage. It continues to confound pundits with its low turnover of shares, apathy towards income and concentrated portfolio of high profile companies at the cutting edge of technology, such as Tesla, Amazon and Apple. It’s certainly not a pick for the ethical types who (quite rightly) rail about tax justice and working practices. But it continues to do the job for many who are sold on the managers’ belief that these companies will produce out-sized returns based on their ongoing disruptive nature – even if they are now priced very highly.

But not everyone agrees, including James Clunie of Jupiter Investments, whose skepticism about highly valued “glamour” companies was also reported on the blog a few weeks back. A lot of ambivalence towards tech firms like Apple is down to the fact that they have to continually rely on new innovations to ensure they stay ahead of the pack – not always a dead cert. I mean, look what happened to Nokia and Myspace, going from hot picks to joke punchlines. The cult of the new iPhone could well be over, as I reported here recently, and the Apple Watch is just not shifting in the numbers that CEO Tim Cook might have hoped for, with “other products” outside the core phone/tablet/laptop stable representing just 5 per cent of revenue and sales slowing down.

Uber dodgy

Then there’s the issue of corporate governance. Young people’s investment preferences can be strangely at odds with their natural idealism – and what most might regard as a sustainable and ethical management culture at the top of a company. For example, Uber is headed for what some commentators believe will be the hottest new IPO of 2017. But the controversial taxi-hailing app has lurched from one management crisis to the next in recent months thanks to the rather, ahem, idiosyncratic style of its CEO Travis Kalanick, who has overseen a 15 per cent fall in the company’s valuation in recent months and was burning through $1 billion a quarter by the end of 2016 with no signs of profitability. And that’s not even encompassing the various charges laid at Uber’s door in recent times, from accusations of mistreating its employees (as Matt Bain reported here) to a new lawsuit alleging that the company is underpaying VAT.

But let’s just return to investing for a mo. An alternative approach to high conviction might be value investing, where you pick stocks that are undervalued compared to their prospects and are flying a bit below the radar. However, these don’t have to be “boring” stocks; if you’re a fan of the latest trends at low prices, you may be happy to know that discount retailers like Primark (or rather its parent company ABF) are heavily tipped to grow as inflation jerks upwards and consumer spending tightens.

A good measure of whether a company is over or under-valued is the “price-to-earnings” growth ratio. I know maths makes most people’s brains hurt, including mine, but it’s not that complicated; the PEG ratio basically determines the relative trade-off between the price of a stock, the earnings per share and the company’s expected growth. Reading up around certain stocks will quickly reveal the PEG ratio and if it’s at 1 or under, that would be considered an undervalued stock and quite possibly a good buy.

On the defensive

An opposite of the high-conviction school of investing is a broadly defensive portfolio, consisting of blue chip companies that you might not directly use (or even like) but that nonetheless tend to hold up well against economic headwinds and may produce an income rather than bumper growth. And I mention this because it’s always worth considering what the economic future holds, both at home and abroad. For instance, should you believe that inflation is on the up in the UK and that people will end up spending less – a real possibility – investment in so-called discretionary stocks (companies in sectors that are dependent on confident consumers) might not seem particularly savvy.

It all hinges on your time horizon, as being in markets shorter term always increases your chances of losses anyway, as well as your actual stock picks. Spending on frivolous fashion should theoretically go down in times of austerity (and it has done). But companies like Ted Baker and boohoo.com are the darlings of the investment world right now. Why? These firms are actually achieving rapid growth OUTSIDE the UK so they’re not affected too deeply by Brexit jitters. Boohoo.com has seen its shares rise by 273 per cent as it expands overseas, while analysts predict earnings growth for Ted Baker of 12 per cent for this year, and 14 per cent in 2018, as it opens new stores across the world.

But note that Ted Baker is a bit of a stealth stock; it doesn’t do any advertising (unlike billboard-hungry Boohoo). Lesley Duncan of Standard Life Investments recently described it as “predictable” rather than spectacular at an event where she outlined what goes into shrewd stock picking.

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Take off the rose-tinted specs

The absolute polar opposite of sexy stock picking is a passive fund that tracks the FTSE 100 and/or other indices in the hope of steady growth. It has to be said that this might be the best option for young people who can’t or won’t do their own research into actively managed funds or individual shares, particularly if they’re minded towards a mainly blue-chip, defensive or income-producing portfolio anyway. But I still believe that the tracker brigade misses out on the chance of finding those real growth narratives which could be present in all kinds of places, from UK smaller companies to the Japanese recovery, that can only really be accessed either by picking individual shares or investing in a fund (the latter probably being far more realistic for your average young investor). This is not to say that I am recommending active investing over passives every time. But certainly anyone who wants to take an investment punt on companies they *heart* need to go active, and one way to hedge your risks (and make the process easier/a bit less fraught) is to pick those fund managers with a good track record, a philosophy of bottom-up stock picking and a relentless calendar of meetings with top brass in the companies they like. And the ones they don’t? Well, you’ll just have to trust them to take your rose-tinted speccies off for you…

DISCLAIMER: None of the funds or shares mentioned in this article are necessarily the chosen investments of the Young Money Blog. They are designed to be helpful examples and reflect varying sources of opinion on investing; they are NOT fixed recommendations for your portfolio. Your investments will entirely depend on your time horizon, your attitude to risk and your goals, and Young Money Blog contains various articles on this subject which I urge you to read. Past performance is no guarantee of the future, you might not get your money back when investing, and bear in mind that you need to be invested in the stock market for at least five years to have the greatest chance of earning a return. Diversification across different asset classes is always a smart idea and you must review your investment portfolio on a regular basis to make sure it is consistent with any changes in your circumstances. If you’re not sure, there is a wealth of robo-advice apps that assess your situation and put your money into funds on your behalf, and these are recommended for those who do not have the time or inclination to research the most appropriate investments.

2 thoughts on “Narcissistic capitalism; do you only invest in what you love?

  • May 25, 2017 at 3:00 pm
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    Hi Iona,

    Your website is excellent. Well done. It fills a gap out there. I wish you ever more success.

    It was nice to meet you yesterday – even though our mistaken identity encounter was like something out out of a Hollywood movie.

    Again, well done.

    Best wishes

    Jimmy

    Reply
    • June 28, 2017 at 4:37 pm
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      Tell me about it! You took the mistake in good spirits!

      Iona

      Reply

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