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What can Match of the Day teach us about stockpicking?

Investors should be careful shooting for ‘Match of the Day stocks’ – businesses that might well shine when viewed as a collection of highlights yet not look quite so compelling taken as a whole

22/10/2019

Simon Adler

Simon Adler

Fund Manager, Equity Value

Even by our standards, here on The Value Perspective, Todd Cantwell may seem a curious starting point for an investment article and yet the young Norwich City midfielder offers a useful way into an idea that we will call ‘Match of the Day stocks’ – businesses that, to extend the analogy, might well shine as part of a highlights package but not look quite so compelling over the full 90 minutes.

Before any Norwich supporters start firing outraged emails our way, do hear us out.

There is no denying Cantwell has enjoyed a dream start to the season, with two assists in the win over Newcastle mid-August and a goal in last month’s amazing 3-2 victory over reigning champions Manchester City – a whole other value piece for another day – book-ending a first appearance for the England Under-21 team.

So for sure he looked great when those two Premier League games were featured on Match of the Day and we have seen some nice bits of skills and mazy dribbles from him on other Saturday nights too.

And yet … and yet … even the most hardened Norwich fan would have to accept there have been times this season – West Ham, for instance, or Crystal Palace – when he has had precious little influence on matches.

Rose tinted

Similarly, there are plenty of businesses that might look very good indeed if a Match of the Day editor were to put together a highlights reel – some exciting growth in one division really catching the eye, say.

Dig deeper, however – as all investors really should – and you may well find the other parts of the business are not shining so brightly and your Fantasy League team budget, sorry, portfolio cash is better allocated elsewhere.

Are we being unfair to Todd Cantwell? Perhaps. But even if you would deny the idea he can occasionally flatter to deceive, any Match of the Day fan will almost certainly have their own thoughts on players who fit that description.

Just as we do, here on The Value Perspective, in an investment context – top of our list being the so-called ‘unicorn’ businesses that have so captured the imagination of the wider market.

As we have discussed in pieces such as Why investors should think hard before feeding a ‘unicorn’, we are all for technology and entrepreneurship yet we do not believe buying such businesses on elevated valuations is, on average, a sustainable way to make money.

At first glance they can certainly look great but, on closer inspection – and as investors are learning – there is often nothing concrete there to support them.

Beware the emotive match report

Moving away from the action on the pitch, our final Match of the Day analogy concerns the post-match analysis, which at times can be pretty melodramatic.

That is no real surprise as football arouses some strong emotions – as, of course, can investment. So what should we make of the MOTD pundits’ analysis of Manchester United’s poor start to the season?

The bare facts are pretty damning – two wins out of nine and losses to the likes of Crystal Palace, Newcastle and West Ham making this the team’s worst start to a season since 1986/87 – but is this the end of Manchester United? That is certainly the impression one might gain from listening to some of the Match of the Day experts – and, to be fair, plenty of commentators elsewhere as well.

A less emotional reading of Manchester United’s situation, however, would suggest a team with sufficient resources to ride out this admittedly rough patch.

And again, returning to investment, struggling businesses have a much better chance of surviving their own tough times in the market if they have a sufficiently robust balance sheet, which is why value investors pay very close attention to this aspect – and especially debt levels.

More immediately, as fate would have it, we notice Norwich City host Manchester United at Carrow Road next Sunday.

What price Cantwell to score the winner? We’ll certainly be watching MOTD2 to find out …

Author

Simon Adler

Simon Adler

Fund Manager, Equity Value

I joined Schroders in 2008 as an analyst in the UK equity team, ultimately analysing the Media, Transport, Leisure, Chemicals and Utility sectors. In 2014 I moved into a fund management role and have had experience managing Global ESG and Pan-European funds.  I joined the Value investment team in July 2016 to focus on UK institutional and ethical-value portfolios.

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