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FOMO: tempting investments 10 wealth managers resisted

10 readers highlight the battles they had to resist jumping on investment bandwagons.

Naeem Siddique

Investment manager, Redmayne Bentley, Leeds  

‘As Mark Twain once said: “There is a charm about the forbidden that makes it unspeakably desirable.” This quote sums up 2017’s infatuation with cryptocurrency and bitcoin.

‘Not being constrained to conspiracy theorists, who desired a decentralised currency without the hand of central bankers, the public awoke to the possibility of an alternative currency that would appreciate inextricably.

‘For me, the lure was corporations and countries legitimising bitcoin: Fidelity staff could spend it in the canteen and the Japanese government began regulating exchanges.

‘As soon as the price rose through $10,000, I couldn’t fathom getting involved. The inexplicable rise of the cryptocurrency couldn’t be pinned down to any fundamentals, while talk of tulips became louder as the year wore on. For a long time, it looked like I missed out as the price rose ever higher. In the end, I thanked my lucky stars I was a mere spectator!’

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Naeem Siddique

Investment manager, Redmayne Bentley, Leeds  

‘As Mark Twain once said: “There is a charm about the forbidden that makes it unspeakably desirable.” This quote sums up 2017’s infatuation with cryptocurrency and bitcoin.

‘Not being constrained to conspiracy theorists, who desired a decentralised currency without the hand of central bankers, the public awoke to the possibility of an alternative currency that would appreciate inextricably.

‘For me, the lure was corporations and countries legitimising bitcoin: Fidelity staff could spend it in the canteen and the Japanese government began regulating exchanges.

‘As soon as the price rose through $10,000, I couldn’t fathom getting involved. The inexplicable rise of the cryptocurrency couldn’t be pinned down to any fundamentals, while talk of tulips became louder as the year wore on. For a long time, it looked like I missed out as the price rose ever higher. In the end, I thanked my lucky stars I was a mere spectator!’

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Stephen Jacques

Director of investment management, Tilney, Glasgow

‘With Easter fading into memory, the half-eaten chocolate eggs remind me of a tempting investment I resisted. In May 2016, Hotel Chocolat listed on the AIM market at 148p per share. As the second anniversary approaches the shares are now approximately 340p to sell. 

‘The company was one I knew well, having followed its evolution from the Chocolate Tasting Club and the expansion of its high street store presence. The story around the sourcing of its product was good and ethical and it was, to me, an interesting and innovative company, but for some reason I resisted participating in the float. 

‘The fear of missing out in this case did not overcome the fear of the unknown views of a fickle market, as well as the “high risk” AIM warning.  As I ponder the pounds lost by not investing, I can see the pounds gained by enjoying their products!’

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Donald Maxwell-Scott

Technical investment manager, Rowan Dartington, Bristol

‘I first heard about bitcoin in 2012, at which time its price was around $10. Unlike traditional investments, it is not traded on a regulated exchange – and I didn’t understand how it worked, particularly the intricacies of “mining” bitcoin or what blockchain was. Suffice to say, I stayed away! Hindsight is a wonderful thing and no doubt if I had invested I would be better off today!

‘Its meteoritic rise in value has garnered plenty of attention so the fear of missing out has recently set in! I have since continued to resist, as I like to invest in quality companies for the long term.

‘Bitcoin still fails as a currency; it’s too volatile and the demand is from people hoping to benefit from future price rises rather than use bitcoin as a means of exchange. Not to mention, central banks cannot exert monetary policy control, a vital component in a stable financial system.’

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Robin Kyle

Investment manager, Tcam, Edinburgh

'The rise of the FANGs (Facebook, Amazon, Netflix, Google) has been well documented, with each stock returning more than 40% in 2017. However, in a market characterised by multiple expansion, we are cautious of valuations among these names, with the NYSE FANG index trading on a multiple nearly 3x that of the wider market.

'Despite their re-rating in March, the FANGs continue to face a number of headwinds. US president Donald Trump’s attempts to re-engage his voter base in advance of November midterms has resulted in his targeting of Amazon, while Facebook’s Mark Zuckerberg must testify to Congress over data privacy issues.

'Even beyond the fundamentals, recent market volatility has highlighted a shift in sentiment as the bull market enters its 9th year. A record quarter for S&P 500 revenues was met with apathy by investors, increasingly aware that the market is priced for near-perfection.

'High growth stocks, such as the FANGs, are likely to be among the worst affected by any further turbulence and so, in line with our approach of protecting clients in a falling market, it’s a case of “FANGs, but no FANGs” for now!'

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Edward Park

Investment director, Brooks Macdonald, London

'The emergence of "unproven disruptors" often represents a trap for investors keen to achieve returns above the broader market.

Two recent examples are bitcoin and peer to peer lending, both concepts that were slated to replace aspects of the traditional banking sector, had a compelling narrative, utilised disruptive technology but have so far failed to replace the incumbent.

'These investments are often very tempting as there are stories from friends, colleagues, clients and in the press of large-scale returns. This should not distract one from the innate riskiness of not only the early stage nature of the technology but also the fact that it is often unlisted startups involved.

'Whilst there is always the risk of missing out on the next big thing, you don’t need to look at niche products to provide good returns in the current environment and as we enter the later stages of the economic cycle, investors should focus as much on downside risk as potential upside.'

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John Paul Thornber

Investment manager, Andrews Gwynne, Leeds

‘Those of us who were investing during the heady days of the 1999/2000 tech boom have felt a strange sense of déjà vu as the US tech sector continues to run ever higher, despite very questionable financial metrics.

‘It has still been difficult to avoid a feeling of fear of missing out towards the new generation of disruptive technology, particularly when it has been trumpeted by investors with the pedigree of Baillie Gifford’s James Anderson. We also remember how a few (very few in reality) savvy investors exited the tech boom early and a lot wealthier.

‘The current hysteria is personified by Tesla; a heroically loss-making company, making few cars, with a market cap higher than Ford.

'Tesla changed the way the world looks at electric cars; it offers lots of imagination, but little ground-breaking tech. Now we understand 23% of the float is being shorted, so a short-squeeze is likely; however, one of Elon Musk’s RUDs [rapid unscheduled disassembly] is inevitably in the company’s future and we are happy to have resisted the siren song.’

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Ben Ward

Senior investment manager, Standard Life Wealth, London

'At Standard Life Wealth, we invest in companies that are beneficiaries of trends and themes that evolve over the longer term. This approach leads us to seek structural long-term investment opportunities.

'One key theme is resource efficiency. A global challenge has been the provision of water with the Bank of America forecasting that, by 2050, 3.9 billion people could be living under severe water stress.

'We have explored this opportunity over the years – such as investigating agricultural companies (it is easier to transport grain than it is water), utilities, pipe companies and even a Brazilian farm land fund which failed to IPO. However, we have yet to find a beneficiary which also satisfies our quality focus.

'We aim to identify well-managed companies, with robust business models where shareholder interests are respected. We have ideas in the pipeline to help uncover future investment opportunities.'

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John Goodall

Head of private client research, WH Ireland, Manchester

'Despite the recent falls in US technology shares, we are not tempted to “buy the dip.” Our US exposure is firmly biased towards value and mid cap, areas of the market we expect to benefit from the recent tax reform.

'Though we do not dispute that there are likely to be some long-term winners in technology, we believe that even after the recent sell-off, valuations on balance look stretched as participants remain highly leveraged and investor confidence is still elevated by historical standards.

'Any self-respecting DCF valuation demonstrates that the Teslas and Netflixs of this world have only a negligible chance of ever achieving the cash flows necessary to justify their current share prices. These imply that they will continue to growth without encountering any major setbacks or competition. There may yet be a time to buy, but just not today.'

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Scott Wylie

Investment manager at Mattioli Woods, Glasgow

'Mattioli Woods watched the exponential rise in technology stocks over 2017, but avoided investing in direct technology funds itself.

'Many returned over 30% in sterling terms, but we believed that we had sufficient exposure through other geographical or thematic funds, such as those investing in healthcare where managers themselves were selecting stocks exposed to the technology sector.

'However, we do acknowledge the impact that technology is having both as a disruptor and as an enabler, and having seen a welcome setback in prices as a result of Facebook’s recent data scandal and comments from US president Donald Trump over the regulation of Amazon, this might well be a buying opportunity for us.

'Our recent analysis has seen us identify three funds which have different management styles and risk profiles, and we genuinely see this as a time to take exposure to a long-term secular growth theme.'

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Rory McPherson

Head of investment strategy, Psigma Investment Management, London

'We are contrarians by nature and going against the crowd is always uncomfortable. Taking the decision to take money out of stock markets towards the end of last year felt tough, but we were finding it harder and harder to find value.

'This can become a psychological quandary as the temptation to get sucked in is high. Prices (and returns) get ever richer and market commentators ever more confident.

'Thankfully, sticking to our process proved right and we are now nearer to the flip-side of “FOMO” where price falls help shake out investors and a good buying point emerges.

'I’m not sure they qualify as investments (they don’t!), but on a more personal level, the meteoric rise of Bitcoin and Crypto’s was tempting, but the old Buffet aphorism of not buying what you don’t understand held me back – they may yet bounce back yet, but I’m happy to pass.'

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