RE: Investing in a saga6 Sep 2020 15:24
In UK travel, those looking for quick gains have faced a hugely volatile market. After falling 58 per cent when Covid struck, the FTSE 350 travel and leisure index recovered half its losses before losing ground again amid the sometimes contradictory swings in government foreign travel policies. At around 6,500 this week, it remains about 40 per cent down on the year. Saga, by comparison, traded this week at £16.30, some 67 per cent down on 2020. A few days before Sir Roger’s intervention it was even lower at £13.30.
Kevin Gardiner, global investment strategist at Rothschild’s wealth management arm, argues that for all the concern about the pandemic, investors should bear in mind that the benign, low-interest environment, which benefits equities, seems likely to last. He points to the US Federal Reserve’s latest policy shift, when it indicated it would tolerate periods of higher inflation to make up for the persistent undershooting of its 2 per cent target.
Still, Mr Gardiner says that when it comes to out-of-favour investments, it can be hard to commit when the circumstances seem dire. “It’s psychologically very difficult to buy when nobody else is. The herd mentality is part of the difficulty for many investors.”
One investor for whom the herd mentality has rarely been an issue is US billionaire Warren Buffett, who in late August announced a deeply unfashionable bet on Japan’s venerable trading houses, buying 5 per cent stakes in the five biggest companies for $6bn.
It is a triply contrarian move. First, large US investors, including Berkshire Hathaway, Mr Buffett’s investment company, have recently focused much of their money on the US, especially on tech. Next, Mr Buffett’s investment contrasts with a general $132bn outflow of foreign money out of Japanese equities in the last 32 months. Finally, the trading companies’ historic strength has been their global links — ties which have been strained not only by Covid-19 but by trade conflicts.
Still, the Buffett magic has had some effect. Marubeni, one of the five traders, saw its shares rise 14 per cent on the news and were still trading 10 per cent up this week.
It may take more to shift jaded foreign investors, disenchanted with the failure of outgoing prime minister Shinzo Abe’s pledge to invigorate the economy with reforms.
Moreover, Mr Buffett hasn’t always been right with his contrarian thinking, especially in recent years, as he has admitted. In April, he sold Berkshire Hathaway’s entire stake in four US airlines at a hefty loss — pulling out of an eye-catching investment he made only in 2016, when he ignored his own longstanding advice on avoiding airline stocks. “It turns out I was wrong,” he said.
But when making any equity investment, contrarian or not, it is still worth pondering Mr Buffett’s rigorous approach. Whatever the general market conditions, he carefully analyses the financial strengths and weaknesses of each potential pick.
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