Make sure that investing in what you know doesn’t close your mind to other opportunities  
Thursday 12 Jul 2018 Author: Tom Sieber

Recent analysis by investment bank Liberum on ITV’s (ITV) boost from England’s better-than-expected World Cup performance included some interesting words of wisdom.

Analyst Ian Whittaker observes the huge audiences for the Three Lions’ exploits are a reminder of the resilience of live TV as a medium and therefore its attraction to advertisers.

‘ITV’s (share price) rating has been dented by what we would call the “London bubble effect”; i.e. opinion formers extrapolating their own media habits onto the rest of the population when, in fact, they are wildly different. For example Coronation Street and Emmerdale generate total audiences of 7m to 8m, five or six nights a week,’ Whittaker says.

In the same way someone who buys everything online may question budget shop brand B&M European Value Retail’s (BME) decision to materially boost its high street footprint at a time when lots of bricks and mortar retailers are struggling.

However, in the words of chief executive Simon Arora, in the value and convenience areas of retailing ‘physical stores are winning’.

We are often told, and with good reason, to only invest in things we understand. However, it is important to not take a blinkered approach to investment and to look beyond your own experience when examining the prospects for a business.

KEEPING YOUR EYES OPEN

The late John Cotter, who provided invaluable support to investors as vice president of Barclays Stockbrokers, recounted a tale from April 2005 which illustrates this point in his 2011 title Cotter on Investing.

‘I came in from work and found my three young teenage daughters gathered around a laptop. I asked what was so interesting and they replied “ASOS”. I asked them a few questions about the company more out of politeness than real interest.

‘I thought no more about this until the next morning when I was waiting to do a training presentation in Glasgow to a largely young female audience of new recruits. While waiting for a few latecomers, and more to break the awkward silence than for any other reason, I asked if anyone had heard of ASOS.

‘The majority of girls put their hands up and spoke in positive terms, as my daughters had before, about the company’s website, the style of clothes and the prices.’

Cotter subsequently bought the shares at 51p after looking at the financial metrics. He noted that without taking on board what he heard from his daughters and learned in Glasgow, the company would not have been on his radar until the shares were at least eight times higher than the level he bought at.

ALL IN THE GAME

In a similar way you might be tempted, based on your own experience, to dismiss computer games as a niche interest and therefore a space which could never deliver serious returns for shareholders.

However, this would ignore the increasing centrality of gaming to the modern world, something which informed the decision to add games developer Team17 (TM17:AIM) to our Great Ideas portfolio on 5 July. (TS)

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