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True defective – Stop us if you’ve heard this before

03/07/2015

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

We all know the well-worn cliché that, if something looks too good to be true, it probably is. The thing is, the only reason it has become so well-worn a cliché is because people keep falling for things that are too good to be true – and the reason they do so, of course, is because they want the things that are too good to be true to be true. Just true. 

We saw this with the spoof study into how chocolate aids weight loss that we discussed, along with its subsequent global media coverage, in The Jellybean Trilogy (Part IV) – How academic research can be as flawed as this title. Really, the spoofers were pushing at an open door – to misquote Jurassic Park, people were so preoccupied with wanting the news to be true, they did not stop to think if it could be. 

Finance and investment are arguably the areas of life where people could benefit most from having ‘If it looks too good to be true, it probably is’ as a T-shirt, a tattoo or, at the very least, their screen-saver. One sees investors forgetting, neglecting or ignoring the warning all the time and we have even started noticing instances of it within the wider world of value. 

That is because a number of so-called ‘deep value’ investors are starting to buy into consumer staple businesses – the likes of Danone, Diageo, L’Oréal, Nestlé and Unilever. Somehow they have managed to contrive an argument that the most solid and sleep-easy stocks on the market – ones that often fall under the description of ‘bond proxies’ – are currently offering the best value. 

There will be times when that really is the case but, as we suggested when we last considered bond proxies in Oh-oh seven, that time is not now. Here on The Value Perspective, we love a bargain as much as the next investor. It is just the ‘unbelievable’ ones where we have a problem and we work very hard to ensure the investment case for anything we do buy is based on hard facts, not high hopes. 

Some of the most expensive stocks on the market are actually a bargain? Wow – sounds too good to be true …

Author

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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