Expert comment from leading figures within the business community, on a variety of
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INVESTOR’S DIARY
BUYING ON THE DIP
Is there anything more frustrating than discovering
you’ve overpaid for a product or service?
T hat quiet sense of elation you feel when telling a mate that you
persuaded your internet provider to lower their monthly charge from
£39 to £32 quickly evaporates when your slightly embarrassed pal
tells you that his charge has remained constant, at £24 a month, for the past
two years. And he’s with the same provider. And he gets a slightly better
package. The price of flights on ‘low-cost’ airlines is another purchase about which
people tend to keep quiet. No-one wants to be identified as the one who
willingly dropped £139 for a trip when almost everyone else on the plane
secured their return journey at a cost of £25.
Theoretically, the internet should have improved the chances of us
avoiding rip-offs, scams, or over-paying for something, but this isn’t the
case. Who hasn’t wondered, immediately prior to pressing the on-screen
‘buy now’ button, whether what they’re about to buy is available at a much
lower price elsewhere?
Instead of making the transaction process more transparent, it could be
argued that the internet has actually made it more opaque and frustrating,
because we can’t possibly compare every single price quoted against
the same item, even when we know there’s a good chance we’d pay less
elsewhere. The irony is that whereas you’re likely to see the same pair of jeans offered
at dozens of different prices online, this is rarely the case with investing,
especially when a company has suffered from an outbreak of one of those
prolonged, social media-led bouts of righteous indignation that causes its
share price to plummet. Its temporary embarrassment is startlingly evident
as concerned sellers abandon ship in their droves and the company’s
value slumps.
Companies are often the architects of their own misfortune. Remember
Gerald Ratner describing his company’s products as “total cr*p”? Hardly a
great PR stunt; it cost Ratner his company. Then there was the decision by
Krispy Kreme donuts to advertise a promotion as ‘KKK Wednesdays,’ which,
while popular with a handful of folks in some isolated parts of the USA, was
not exactly embraced by shocked Americans and quickly dropped.
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More than three years ago, it emerged that Volkswagen had been, ahem,
amending emissions data on its diesel vehicles to make them look cleaner
and greener than they actually were. This was a scandal on an enormous
scale, one which cost the car manufacturer billions of dollars in fines,
but take a look at Volkswagen’s share price and you will see that the
outrage, once it subsided, has had little long-term material impact upon the
company’s value.
In October 2015, VW’s share price plunged to €92; today it’s €140, an
increase of more than 50%. Last year, the company sold a record 6.2
million cars.
Remember David Dao, the man who boarded a United Continental
plane in Chicago after the airline had over-booked his flight and Mr
Dao was dragged from the aircraft by police offi cers? Footage of the
nasty-looking incident went viral and attracted millions of views on social
media. Continental’s response was less than effective and its share price
nosedived. In the week following the incident, Continental’s shares could be acquired
for $60.33, but within two months they had climbed to $82, a 35 percent
increase in value in the space of eight weeks. Do you note any kind of
trend here?
Baron Rothschild, the eighteenth century British noble and member of the
Rothschild banking dynasty is credited with saying that “The time to buy is
when there’s blood on the streets, even if the blood is your own.”
Rothschild made a fortune following his own advice in the wake of the
Battle of Waterloo, making him perhaps the first contrarian investor.
Today’s investors may not be absolutely sure that they’ve achieved the
best possible price when buying a pair of jeans online, but whenever a
company suffers from a bout of online hysteria which causes its share
price to tumble, they can be assured that the price at which they can
become a shareholder in the company is the same as everyone else is
paying. Granted, it could move lower or the hysteria could last longer than
anticipated, but ‘buying on the dip’, while a strategy for the bold, tends to
be one that pays dividends.