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an investor who buys in at the
bottom will see gains of 10x their
money if it rebounds to its original
price. However, David Coombs,
head of multi-asset investments at
Rathbones, points out the problem
with this hypothesis is the word “if”.
Life support
“Given the depth of this recession and
the huge structural trends going on in
the global economy right now, I think
quite a few beaten up stocks won’t
actually come back,” he says.
“There will be a few UK stocks
where this strategy will probably
be justified. But I think a lot of
stocks that have fallen the hardest
are frankly just on life support and
should probably have it turned off.”
This is a view echoed by Jamie
Ward, manager of the TM CRUX
UK Core fund. Ward thinks about
investing in terms of sustainability,
which means modelling a company’s
earnings for up to 20 years and
identifying any threats to its
business model that may arise
over this time. He believes that for
many of the hardest-hit industries,
surviving the economic lockdown
may not be enough, as the main
threat from the coronavirus will be
in its longer-term impact on human
behaviour.
“A lot of stocks that have
fallen the hardest are
frankly just on life support
and should probably have it
turned off”
“The world may have changed in
terms of attitudes towards social
gatherings,” he explains. “If you buy
a bombed-out restaurant chain, it
doesn’t matter when the government
eases the lockdown if people aren’t
willing to eat out, and if people are
reluctant to go abroad, then buying
an airline may not be a clever idea.”
TRUSTNET