Crystal clarity - An apparent relationship between two facts is nothing without a causal link
Here on The Value Perspective we do not have anything in particular against the ‘sell-side’ analysts or brokers responsible for all the ‘buy’ and ‘sell’ recommendations on company shares – even if we are pretty much the antithesis of everything they forced to hold dear in their line of work. It is nothing personal, of course. It’s just value.
Thus, for example, we are never going to generate much in the way of fees for brokers because our portfolios have such low turnover – and, anyway, we prefer to do our own research. Furthermore, since we tend to be so contrarian, we are prone to saying things brokers and the companies they represent would rather not hear – whether we are selling when things are good or buying when things are bad.
None of which is to suggest many brokers are not very intelligent people and indeed many of them do ‘get’ value investing. Over the years, a few of them have even developed what one might call ‘closet value leanings’, which while not exactly helpful in their own jobs can be very helpful in ours in terms of some of the research they pass our way.
One such broker, on whom as a friend of The Value Perspective we shall bestow the cloak of anonymity, sent us the enlightening chart below. It shows a remarkable correlation, dating as far back as 1997, between the share-price performance of International Airlines Group (formerly British Airways) and, well, the three-year moving average league position of crystal palace football club.
Source: Schroders 14th May 2013
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.
Now, bearing in mind the club is set to play Watford on 27 may for promotion to the premier league, that correlation is potentially hugely exciting news for IAG shareholders – only it is nothing of the kind, is it? In reality, the information in this graph is just as unhelpful as that 94% correlation between Icelandic beer prices and the S&P 500 index we highlighted recently in invest in rhyme.
What this graph really illustrates – aside from the fact some brokers have a good sense of humour – is commonality and causality are not the same thing. An apparent relationship between two sets of data is nothing without a causal link and, unless they happen to follow either of the teams involved at Wembley at the end of May, IAG shareholders need not be too concerned about the result.
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.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.