INVESTING IN SENSE
NICHOLAS HOPS: Don’t invest on headlines
Making emotional decisions based on headlines is a dangerous road; investing where sentiment is most positive carries a big risk of capital loss
It is perilously easy for investors to get caught up in sentiment and buy into "story stocks". Not wanting to miss out on the next big thing, the market often drives up the price of favourably positioned assets far beyond their intrinsic value, and pushes the perceived losers far below theirs. At this time, the disconnect between price and value can be extreme. When headlines scream "buy" or "sell" regardless of price, only detailed analysis can give you the confidence to take an alternative view. Take these case studies: For at least a decade, paper investments have been written off, as many expected a relentless and brutal decline in demand. Despite this bleak outlook, Mondi has grown earnings before interest and taxes from its uncoated fine paper division almost threefold since 2007. This surprising outcome is due to a combination of constrained supply (a consequence of underinvestment) and demand proving to be more resilient than most expected.
Mondi’s low-cost assets and...
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