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Five famous market gaffes

Many of the sillier episodes in market history came about as a result of people rushing in to invest with massively incomplete information – on the basis of, as it were, ‘buy first, ask questions later’

26/06/2018

Andrew Williams

Andrew Williams

Investment Specialist, Equity Value

Over the last month or two, here on The Value Perspective, we have had a little fun at the expense of chief executives, in articles such as Five famous chief executive gaffes and Company bosses are human too.

Let’s now square that circle by acknowledging that, at heart, markets are as human – and thus as prone to mistakes – as chief executives. Note that the companies mentioned below are not a recommendation to buy or sell them. There were so many examples to choose from but these were just five of our favourites.

 

Tate and Lyle

In his Budget speech of 2016, the then Chancellor of the Exchequer George Osborne announced a surprise ‘sugar tax’ – specifically, a levy on soft-drinks manufacturers.

Traders reacted quickly to the announcement and began shorting Tate and Lyle stock – to the such an extent, in fact, that the company’s market capitalisation fell 2% in the space of six minutes. 

With the Tate and Lyle name pretty much synonymous with sugar, this seems logical enough – until of course you remember the business sold off its sugar-refining operation in July 2010.

After traders had twigged this mistake themselves, Tate and Lyle’s share price returned to the 568p mark it had been at before Osborne stood up to speak yet, at one point, it had dropped 10p on a simple misperception.

 

Nintendo

In the summer of 2016, the extraordinary popularity of Pokémon Go led many investors to buy into Nintendo, causing the company’s share price to double within a couple of weeks and its market capitalisation to shoot past that of big rival Sony.

With Nintendo due to offer its quarterly trading update a month after the game’s release, there was great anticipation as to what this would mean for its numbers.

Not a great deal, as it turns out – Nintendo revealed it would not be revising its earnings forecasts for the simple reason it did not own Pokémon Go and so its profits would not materially change.

The game, it emerged, had been created by US software developer Niantic and so, although Nintendo still owned the ‘Pokémon’ name, any profits from licensing fees was set to be minimal.

 

Long Island Iced Tea Corp

We actually touched on this earlier in the year in The Bitcoin Perspective but it is a tough story to leave out, seeing as it involves Long Island Iced Tea Corp’s shares quadrupling in price in a day simply because of a change of name.

This was not just any change of a name though, with the tiny New York-based business – which had never reported a profit – opting to rechristen itself LongBlockchainCorp.

The company also declared it was “shifting its primary corporate focus towards the exploration of an investment in opportunities that leverage the benefits of blockchain technology”.

Given this was late 2017 and the height of the market’s bitcoin fixation – and despite prominently warning there was no assurance any agreement would ever “be entered into or ultimately consummated” – the new name was enough for some.

 

Seabord Air Line Railroad

While 2017 saw investors rushing to buy all things bitcoin-related, 80 years earlier, Charles Lindbergh’s solo flight from New York to Paris led to a surge in the price of airline stocks.

One of the beneficiaries back in 1927 was Seabord Air Line Railroad – a pure railway business, the ‘Air Line’ part of whose name referred merely to the long stretches of track it covered along the US’s Eastern seaboard.

 

AppNet Systems

No article of this nature would be complete without mention of the dotcom boom – and bust – at the turn of the millennium and so we finish our brief tour of market silliness in 1999 and the hotly anticipated listing of AppNet Systems.

It had filed to list under the stockmarket ticker identification ‘APPN’, which at the time was assigned to a tiny company with no active business called Appian Technology.

In the two days following the filing – and before it was even possible to trade in AppNet stocks – investors piled into ‘APPN’, pushing Appian Technology’s share price up by a staggering 142,757%, albeit from a starting point of well below one cent.

And, as with each of our other examples, this was all because people rushed to invest with incomplete information – on an, as it were, ‘buy first, ask questions later’ basis.

 

We all make mistakes

Here on The Value Perspective, we would not suggest our more considered approach – where we aim to find out all we can about the potential risks and rewards associated with a company – makes us immune from ever making mistakes.

We are, however, able to point to a very strong record of actually buying into the businesses we mean to.

Author

Andrew Williams

Andrew Williams

Investment Specialist, Equity Value

I joined Schroders in 2010 as part of the Investment Communications team focusing on UK equities. In 2014 I moved across to the Value Investment team. Prior to joining Schroders I was an analyst at an independent capital markets research firm. 

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