Did you ever play the arcade game Whac-A-Mole? Then you’ll know what I mean when I say that for investors, reading the headlines can feel eerily similar. Whac-A-Mole was an oven-sized cabinet with half a dozen holes cut in the top. Every now and then a synthetic mole would pop out of a hole, and you had to bash it back down with your mallet. The thing is, dealing with one mole didn’t stop another appearing. In fact, it only seemed to make them pop up faster!
Digging up the dirt
Now I’m not an expert…
Did you ever play the arcade game Whac-A-Mole?
Then you’ll know what I mean when I say that for investors, reading the headlines can feel eerily similar.
Whac-A-Mole was an oven-sized cabinet with half a dozen holes cut in the top. Every now and then a synthetic mole would pop out of a hole, and you had to bash it back down with your mallet.
The thing is, dealing with one mole didn’t stop another appearing.
In fact, it only seemed to make them pop up faster!
Digging up the dirt
Now I’m not an expert on Talpa europaea (that’s latin for ‘mole’) but I suspect Whac-A-Mole wasn’t the most realistic rodent suppression simulator.
I mean, I’ve seen a lot of molehills, but I’ve never seen a mole.
Given their shyness, I’d bet that one bash on the head and it would be game over* for spotting any more of the reclusive earth dwellers!
But as a metaphor for bad headlines, Whac-A-Mole is hard to top.
It seems we always need something to worry about, and journalists are only too happy to find fresh fodder.
This year we’ve had the Gaza conflict, the Russia-Ukraine skirmish, and the Ebola virus.
No sooner has one of these unhappy affairs lost our attention then – just like in Whac-A-Mole – another has popped up to take its place.
Indeed as my Foolish colleague Maynard Paton predicted would happen, this week we’ve seen share prices hit by rampant speculation that Scotland might break away from the UK.
Banks such as Lloyds and TSB fell as much as 4% on Monday alone.
Even Scottish companies such as Weir that operate all around the world were caught up in the selling.
Down the rabbit hole we go
Adding to the fears about the big banks, we also heard news from one of their own – Halifax – that UK house-price growth is slowing.
It seems prices edged up merely 0.1% in August – as opposed to 1.2% in July – bringing annual growth down to 9.7%, versus the 9.9% anticipated by most economists.
Now, a 0.1% rise in summer doesn’t seem like reason to panic to me.
But shares in housebuilders such as Redrow and Berkeley still fell as much as 3% the day the news came out.
Maybe some feared a double-whammy: Could the turmoil of Scottish independence tip the housing market into a fully-fledged reversal?
Just as the most hairy moments in Whac-A-Mole came when two moles popped up at once – splitting your mallet’s frenzied attention – so investors hate multiplying uncertainties.
They make it increasingly possible to construct stories of doom.
Stories that always seem to end with the same advice…
Their fear, your chance
Well, I’m not here to scare you into selling your bank shares, or anything else.
Firstly, I’m a rare investor who actually prefers uncertainty.
Uncertainty usually means cheaper prices, for one thing.
Buying cheap can give you a greater margin of safety to a share’s intrinsic value.
This way, even if the bad predictions come true, you might not lose too much.
What’s more, if things don’t turn out badly, you can also bag bigger gains.
Remember – uncertainty is all we’re dealing with so far. A poll is not the same as a referendum, and in a fortnight this could all be history.
But do I go too far if I suggest that a dramatic sell-off of UK shares ahead of the Scottish referendum might be a buying opportunity?
I don’t think so.
As I see it, nobody really knows what will happen even if Scotland votes “Yes” on 18 September.
That means excessive fear could equal more opportunity for the likes of you and me.
Whisper it, but this putative crisis could even have advantages for companies both north and south of the border.
For one thing, the pound has latterly been falling, as international speculators get cold feet and bail out of Sterling.
This could prove a silver lining that’s not been much reported yet.
FTSE 100 companies derive around 70% of their earnings overseas, and 2014 has seen many blame a strong pound for falling sales and profits.
Yet the pound is down almost 5% against the dollar since the start of July.
If it stays down or heads lower against other currencies, it could prove a shot in the arm for our multinationals.
And while we’re at it, let’s not forget that most FTSE 100 companies are already global operations.
I think the idea they would be impaired for more than a few months by Scottish independence is frankly preposterous.
There might be a bright side closer to home, too.
You see the money markets were betting that the Bank of England would start to increase interest rates in the next six months.
Yet this week’s fears have already pushed that expectation out by a month.
If things really get bad – unemployment rising, a slowing economy, falling house prices – then rate rises will surely be the last thing on Governor Mark Carney’s mind.
Big companies enjoying a currency boost from operations overseas would surely enjoy lower rates at home, too.
Yet even investors who sold their UK-focused housebuilders might regret it if a “Yes” vote meant continued low rates and affordable mortgages for years to come.
And without wanting to turn political, I do wonder what the markets would make of the prospect of a nailed-on Conservative government that Scottish independence could usher in for the rest of the UK?
Fairly or not, the Tories tend to be considered the more fiscally responsible party by investors.
So that could be an underappreciated fillip for share prices, too.
Mountains out of molehills
Of course I could also sketch out the negative scenarios.
A modest decline in the pound is one thing – a full-blown run on the pound would be another.
Also, while I suspect the big banks would move swiftly to relocate their headquarters to England, there’s no doubt 18 months of disentangling Scotland’s affairs from the rest of the UK could weigh heavily.
But nobody should be investing in shares with an 18-month time horizon. Five to ten years is more like it.
Which brings me to the main reason I’m not selling up.
As I said at the start, there are always bad headlines.
There is always the potential for unpleasant surprises.
There’s always another bad news mole ready to pop up.
But as long-term Foolish investors, I believe our best chance of success is to keep focusing on the businesses we invest in and the price we pay for them.
And then to keep bashing away!
* No moles were injured in the preparation of this article.
Owain owns shares in Lloyds Banking and TSB.