Adrian HollidayYou will have seen the warning: the value of your investments may go down as well as up.
It won’t always be possible to bail out before your positions turn south but at least when investing in stocks and shares there are portents that should set alarm bells ringing. Here are a few:
1. Company announcements
Share prices respond to news, bad, good and anything between. Including a 24-hour global rumour mill (which we’ll come to).
We’re dealing with a sophisticated asset class and some very savvy players. Poor earnings may be priced in (stock market investors always look ahead).
A batch of rough-looking numbers may be better than the market expects. Grim sales can sometimes mean a share price leap. The same for staff lay-offs or cost trimming.
Positive news can cause shares to sell if the noises are limited and underwhelming. It’s a topsy-turvy financial world out there. Be smart and do your homework.
2. Gossip
Negative publicity on social media such as Facebook and Twitter can hurt a company's share price“You know like gossip found me,” sang hip hop singer Lil Wayne. Gossip finds everyone.
Twitter, Facebook, an internet bulletin board or down the garden centre. Betrayal is instant. Larger companies may have the ballast and reputation to resist smaller word-of-mouth pokes and bitching. Smaller companies generally don’t.
Then there’s the media, new and old. Tightened budgets mean journalists don’t spend as much time fact-checking. Opinion dominates. There’s Fake News.
Companies can fight back using similar online tools. Viral marketing campaigns, for example. But the ‘news’ food chain is complex with little ‘right of reply’. So discriminate. There’s a lot of noise out there you don’t need.
3. Industry ‘events’
Many stocks in the same industry dip or rise simultaneously. That’s because the same market conditions apply to all. Mostly.
An oil price slip, say, is equally good news for Ryanair, KLM-Air France and IAG, reducing their fuel bills. A spike in the value of oil affects the same players. If investors think easyJet’s fuel price hedging strategy is smarter or more adept than Ryanair’s, it will suffer less.
But ‘events’ can provoke irrational responses, right across an industry or region. A terrorist outrage on a North European capital might deter US tourists from visiting Europe.
Athens may be 2,000 miles from, say, London, but for a Midwesterner the Greek capital is in the EU. And it’s a scary place.
4. The economy
How is business and consumer confidence? What‘s the cost of debt? How soon might it rise or fall? What is the latest Purchasing Managers’ Index saying? Many of these factors are inter-related.
