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30/11/20182 mins

Flying the flag on St Andrew’s Day? Take a lesson from history

According to tradition, St Andrew became the patron saint of Scotland after the Pictish king Oengus II saw the saint’s slantwise cross in the sky. And in several Eastern European countries, young people look for signs of their future wife or husband in their dreams on St Andrew’s Eve.

Well, as contrarian investors, we’re also looking for signs. But we don’t gaze at the clouds for inspiration or get dreamy and romantic. Instead, we sift through out of favour areas of the market to find stocks that have been overlooked – the ones investors view as sinners rather than saints.

Ugly ducklings
These are the companies we like to think of as ‘ugly ducklings’ – one of our three investment categories. Shunned by most investors, these unloved shares may have endured a long spell of poor operating performance. And in most cases, the near-term outlook is uninspiring. As contrarians, we take a closer look at these stocks to ascertain if there is improvement on the horizon. If so, they can 2be valuable investments and often pay a higher than average dividend yield. Providing an attractive income for our investors, while the ugly ducklings transform into swans.

Change is afoot
The second of our categories contains businesses where ‘change is afoot’. Usually, the prospects for these companies have already improved, but the broader market hasn’t quite caught up – or is unconvinced. Here, emotional factors often come into play, with investors discriminating against companies for historic reasons. In this scenario, they’re unwilling to give full credit for the signs of change that are evident.

More to come
Our third category of stocks is where we see scope for even ‘more to come’. Unlike the first two categories, these companies are broadly recognised as good businesses. But while some investors might recognise that the company has decent prospects, we have a belief that there is an opportunity for further improvement.

If the tales of our Pictish king are true, gazing at the sky inspired his choice of St Andrew as Scotland’s patron saint. While there’s nothing wrong with building castles in the sky, as investors, we’d rather put our faith in old fashioned analysis.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this blog should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.

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