Peter Hargreaves has told investors not to fall for the “old-world order” of value investing which relies on cyclical stocks rotating back to prominence, urging them instead to study the companies in which they invest their cash.
In a note to investors today (April 30), the Hargreaves Lansdown founder said although the price swings of some share prices were predictable, others had been surprising.
For example, Mr Hargreaves said one sector which had delivered a “general surprise” was technology, specifically stocks such as Facebook, Amazon, Apple, Microsoft and Google.
These companies have managed well throughout the coronavirus crisis despite being considered “risky” before the market downturn.
The share price of Google’s parent company Alphabet jumped 9 per cent yesterday (April 29) after reporting better than expected results while Microsoft saw 4.5 per cent added to its share price following a 15 per cent boost in sales.
Value stocks, with low price tags, typically perform well in market downturns but the coronavirus crisis has seen quality growth stocks, such as US tech companies, outperform.
Mr Hargreaves said: “The [tech stocks] have been the conduits to aid communication and trade during this lockdown. There was a feeling that technology had already been universally embraced — that proved not completely true, but rest assured the take up has now burgeoned.”
He thought this showed the “valuable lesson” not “widely acclaimed” that it was vital an investor understood, in detail, everything about the companies in which they invest.
Mr Hargreaves said: “It might perform short-term but unless you know the reason for investing you cannot decide whether to sell or keep long-term.”
He also believed the well-trodden argument that stock markets were cyclical, and that recovery and cyclical stocks would bounce back, was “outdated”.
Last month he warned investors against relying on market history and previous market “bounce backs” to make decisions, claiming the economy today had “no resemblance” to previous booms.
Today, he told investors the outperformance of tech stocks was a “salutary lesson” to traditional fund managers who still “court the old-world order”.
He said: “Previously they relied on recovery stocks recovering and cyclical stocks rotating back to prominence. It is my belief that this strategy is now outdated – many of these recovery and cyclical stocks may not even survive.”
imogen.tew@ft.com
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