Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
Today I want to highlight an important principle for value investors to bear in mind.
Peter Lynch, fund manager for the Megellan Fund at Fidelity, where he averaged a 29.2% annual return, said:
“As often as a dull name in a good company keeps early buyers away, a flashy name in a mediocre company attracts investors and gives them a false sense of security”
In an ideal world investors would look over every share, and filter out based on sound sifting criteria. In reality, share buyers have limited time to spot opportunities, they thus develop short cuts to narrow the search; often attracted by good stories or themes. Their eye is often caught by a particular word or hint in the company name.
Examples include:
•Graphene is seen as the material of the future, 200 times stronger than steel and as much as 6 times lighter. Companies with graphene in the title are more likely to get attention.
•Putting “tech” in the name of a company was a way to boost interest in the 1960s. In the late 1990’s the key was “dot.com”
•If the moniker hints at “fintech” nowadays then it is more likely to catch on than if it hints at metal bashing.
The sense of security comes because “it’s obvious that these are the industries of tomorrow, so demand will be there.” And besides, “lots of people are keen on investing here so I can’t be too far wrong going with the crowd, can I?”
The result of this attention can be over-priced shares for the flashy names when taken as a group. Most may never have made a profit; they are surrounded by other wannabe’s, and; their proven growth record may be mediocre.
A few will succeed most will fail. It’s rather like the attraction of gold in 1896-9 Klondike rush. 100,000 men spent……………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
