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15/10/20182 mins

The folly of being a stockmarket fashion victim

In the fifteenth century, pointy shoes were all the rage – the longer and pointier the better. ‘Crakows’, as these extravagant items were known, eventually became so long that wearers are reported to have tied the ends of their shoes to their knees or belts. Apparently, Edward IV of England even passed a law restricting their length. Like so many other fashions, then, the craze for crakows was taken to ridiculous lengths – and then quietly faded away.

Shoes might be more sober today, but the equity markets always have their fair share of fads and fashions. And those can often end with more of a bang than a whimper.

The world’s stockmarkets have taken a tumble this month, with shares down pretty much across the board. Among the big fallers have been the likes of Facebook and Amazon – the so-called FANG stocks. The pundits have proffered various explanations, from rising interest rates and bond yields to the Sino-US trade tensions. Yet all of these phenomena were in place over the summer months. So why have markets suddenly turned south?

That’s always a difficult question to answer. The market is a fickle beast, and it’s very hard to know which particular straw will break its back. We’ve written before about the FANG stocks, noting that any disappointment could lead to their prospects being radically reappraised. That may be what we’ve been seeing in recent days, as the technology giants have taken a beating. Fashions change, and, as borrowing becomes more expensive, the fashion for growth at all costs may be coming to an end.

Even the most dedicated follower of fashion finds it hard to predict when the whims of the market will change. We can’t say whether the FANGs have lost their bite or have just taken a temporary kick in the teeth. But what we can do is build a portfolio of stocks that are distinctly unfashionable – and potentially less vulnerable to sudden swings in sentiment.

As contrarian investors, we’re always aware that what was unfashionable once can become suddenly fashionable again. That said, we’ve got much more faith in our portfolio of unloved stocks than in any sudden revival in crakows.

 

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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