A common mistake made by rookie investors is to piggyback on a new and exciting theme in the belief that because it is growing in popularity or even importance , the money is sure to follow . Yet while they are right about the money following , the problem is it doesn ’ t always come back out again : retail investors will often pour into a sector after all the easy money has been made through multiple expansion , but receive little back in terms of earnings , dividends or even their initial outlay . The best example of this was the dotcom bubble when , if anything , investors underestimated the potential impact of the internet , yet most stocks that rocketed through association with this theme proved to be worthless .
Examples of this type of behaviour are still playing out in the stock market today , albeit on a much smaller scale . Alex Illingworth , manager of the Mid Wynd International Investment Trust , says Danish wind farm developer Ørsted highlights the folly of this mindset . It has been one of his favourite stocks in recent years , with its share price quadrupling between the start of 2018 and the same point in 2020 as it rode the trend for sustainable investing . “ It is a commonly held belief that investing in areas of demandgrowth brings automatic investment success ,” he says . “ The Ørsted share price experience seemed to vindicate this , but 2021 has exposed the misconception . So far this year , Ørsted has dropped around 35 %; BP , meanwhile , has risen 35 %.” Yet just as there are numerous examples of bold , headline-grabbing themes that don ’ t make any money , there are just as many boring and little understood trends taking place in the background that can be lucrative hunting grounds for investors who are willing to do their research .
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IA UK All Companies
By Adam Lewis
The end of the Brexit saga has finally given the UK
the certainty it has craved. But has the confusion over this issue
masked deeper problems in the domestic market?
Issue 78 / November 2021