Good news doesn’t sell newspapers. It’s an old saying, but still true in an era when people consume news digitally. We tend to want to read about the plane that crashed, and not about the thousands that instead made it safely to their destinations.
Investors, in my experience, take this to extremes. Not only are they irresistibly drawn to bad news, they then often act on it, by selling shares.
The resulting share price falls then tend to get amplified by other investors. They may not have even seen the original news – whatever it was – but they have seen the resulting fall in the share prices, and look to see what might have caused it.
Panicked – and believing that selling-up must be the correct course of action, because that’s obviously what everyone else is doing – they then also sell, driving prices down further.
Unloved shopping centres
We can see this sort of behaviour in certain property stocks at the moment.
It’s no secret that many retailers are struggling, and investors are quite rightly aware that if retailers are suffering, then those retailers’ landlords may also suffer.
Bankrupt retailers interrupt their landlords’ flow of rental income, create rental voids, or – via a Company Voluntary Arrangement, a popular device used by companies in administration – put pressure on landlords to accept rent reductions.
British Land, Hammerson, NewRiver Retail – just such fears have seen investors give retail-exposed property companies like these a wide berth. Yet the companies in question are very solid businesses, well managed, with prime real estate holdings, and decent track records of delivering long-term returns to investors.
And the proportion of their customer base that is troubled appears very, very low.
Brewers’ droop
In a slightly different context, something similar has been happening with brewers and pub operators.
Squeezed consumer disposable incomes, low levels of consumer confidence, Brexit, changing drinking habits: since 2016 or so, the market has become increasingly gloomy about the prospects for companies such as Marston’s (LSE: MARS) and Greene King (LSE: GNK), two of Britain’s largest brewers and pub owners.
Again, wary investors have been giving both companies a wide berth, and are twitchy when it comes to corporate announcements and results.
A relatively innocuous trading update from Marston’s on July 24th, for instance, noted that sales over the previous 16 weeks had been a little lower than last year (an unusually hot and dry summer, during which England had a successful World Cup run), and that the board had decided to postpone some capital expenditure in order to accelerate debt repayments.
Hardly bad news, you might think.
Confirmation bias
You’d be wrong. When the market is fixated on a ‘bad news’ story, almost anything is seized upon as confirmation of the bad-news story.
Marston’s shares promptly plunged from 125p to 105p – a 16% fall.
Heaven only knows what would have happened had the trading update been actual bad news.
Since the end of 2015, Marston’s share price is down 38%. Greene King’s is down 31%.
With property shares, the falls have been steeper. Over an identical period, British Land is down 32%, NewRiver down 51%, and Hammerson down a whopping 58%.
What to do?
To me, as you’ll have gathered, such falls seem over-done. In both brewing and property, it seems to me, the mood music is very similar to the gloom surrounding the oil and mining sector in early 2016. Or engineering businesses in 2009.
To be sure, everything might not be rosy. Brewers and retail landlords are facing tougher conditions, that’s undeniable.
But the market’s view of those conditions seems excessively pessimistic.
As veteran investor Warren Buffett has remarked, you pay a high price for a cheery consensus.
And right now, with a consensus that’s far from cheery, the share prices in question are far from high. Bargain – or value trap? I know what I think.
