Trustnet Magazine 78 November 2021 - Page 46

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The hidden world

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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