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World cup emotions reinforce using a value investing system

Whether it relates to England’s chances in a World Cup or a company in the stockmarket, human emotion really does not change – but at least, in the latter context, value investing is designed to take advantage

27/06/2018

Andrew Evans

Andrew Evans

Fund Manager, Equity Value

Two minutes before Harry Kane’s last-gasp winner against unfancied Tunisia in England’s first game of the 2018 World Cup, the mood in the London Bridge sports bar was one of sombre resignation – so it was going to be one of those World Cups.

Two seconds after the final whistle, the bar resounded to the opening strain of England's famous World Cup 1998 theme song ‘Three Lions’ – “It’s coming home, it’s coming home …”

No, it was going to be one of those World Cups.

Like the controls of a shower in a two-star hotel, it does not take much to switch the emotions surrounding the national football team from one extreme of temperature to the other – “It’s scalding hot, it’s freezing cold …” as it were.

And of course ‘Three Lions’ does tap into that cycle of emotion – wearily familiar to England football fans – that runs from artificially low expectations to unrealistically high ones. And back again …

World Cup 2010 headlines

England group stages announcedEngland go out of the cup

 Source: The Sun

Whenever England do qualify for a World Cup, this happens on a fairly predictable four-year cycle – two years, if you throw in the Euros. And a similar – if perhaps less rigidly timetabled – phenomenon can be seen in the stockmarket where investors can go through a range of emotions.

Euphoria

Football: "It’s coming home, it’s coming home, it’s coming …"

Investing: "This is the best company I have ever bought – great numbers, great barriers to entry, just great."

 

Denial

Football: "Everyone seems to know the score, they've seen it all before … They just know, they’re so sure …"

Investing: "The shares are falling, you say? Then the market’s wrong – there is no way I’m selling out of this."

 

Fear

Football: "That England’s gonna, throw it away, gonna blow it away but I know they can play."

Investing: "Hang on, now I’m getting nervous. Maybe I have got it wrong. Oh no – I just doubled my position."

 

Despair

Football: "So many jokes, so many sneers …"

Investing: "People will be asking me why I’m now the biggest holder of this stock. I’ve made a terrible mistake"

 

Capitulation

Football: "But all those 'oh so nears …"

Investing: "But it looked so great. What can I have been thinking? Time to sell. Maybe no-one will notice."

 

Disinterest

Football: "Wear you down, through the years ..."

Investing: "The shares are rising, you say? Then the market’s wrong – there is no way I’m buying back in."

 

Acceptance 

Football: "But I still see that tackle by Moore … and when Lineker scored …"

Investing: "Actually, management do seem to have fixed things. Maybe it’s time I got back on the horse."

 

Excitement 

Football: "Bobby belting the ball … and Nobby dancing ..."

Investing: "What a great move. I’ll make all my losses back. This is the best company I have ever bought …"

 

Football:

"I know that was then … but it could be again …

It’s coming home, it’s coming home, it’s coming …"

 

The world is continuously changing but one thing does remain constant – human beings. Markets are cheap when we are fearful; and they are expensive when we are greedy.

However this World Cup pans out, in the world of investing it turns out we are systematically exploitable.

And value investing is the system.

Author

Andrew Evans

Andrew Evans

Fund Manager, Equity Value

I joined Schroders in 2015 as a member of the Value Investment team. Prior to joining Schroders I was responsible for the UK research process at Threadneedle. I began my investment career in 2001 at Dresdner Kleinwort as a Pan-European transport analyst. 

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