There’s one UK company that’s had more than its share of bad publicity in recent weeks. Yes, that’s right – Tesco (LSE: TSCO).
We’ve had profit warnings, the dividend’s been cut, the CEO’s resigned and now the chairman’s going. And don’t forget the accounting scandal that’s lopped a quarter of a billion or so off profits. Apart from all that, it’s been hunky dory!
It’s easy to understand why everyone’s so interested, though. Tesco is our biggest retailer. Most of us have shopped with them at some point and many still do despite its struggles. So, it’s a very familiar company.
We also have a ghoulish fascination with bad news. Profit warnings, accounting scandals and sackings create far more compelling headlines than those saying a company is meeting its forecasts.
From our investors’ point of view, however, all this publicity can be a massive distraction. We simply feel compelled to have a view on the shares and I think this can be one of the most unhelpful impulses in investing.
Investors get themselves worked up over nothing
When I managed funds professionally, I could guarantee having to field questions from clients in high-profile cases such as Tesco.
There would at least be an anxious “do we hold Tesco?” I would also expect to be asked for my views on the stock and whether we should be buying it after the decline. Even if I hadn’t previously shown much interest in it or the industry.
The sheer volume of noise seems to demand a response. So we can find ourselves wasting time thinking about an investment proposition that we might be better swiftly dismissing as simply ‘too difficult’ to reach a conclusion on at the moment.
Part of this compulsion to get involved is a fear of missing out if this really is the bottom. This surely has to be a poor motivation for buying a stock.
So, what if Tesco starts going up from here and performs well without us on board? There are close to 2,000 companies listed on the London Stock Exchange. Plenty of these will go up a lot over the next couple of years without us owning them – or even knowing their names.
But because of all the noise, and the fact that it’s Tesco, we can feel like we’ve made an active decision not to buy. Which is why we would feel regret if it went up without us.
It’s a problem small-cap investors don’t have to worry about
A far better approach is not to waste any time worrying about things we don’t own. We should invest purely because we like the story, we like the valuation and we can see how the shares will go higher.
There are plenty of techniques and rules we can use to help us find these stocks – but the bottom line is that we are making a positive decision to back something we believe in.
After all, you only need 15 to 20 stocks to have a reasonably diversified portfolio. We might choose to own a few more, but there will be literally hundreds that will barely cross our radar during a lifetime of investing.
And many of those will be good investments. So there’s no point in worrying about missing out on them – because it’s an unavoidable fact of investment life.
My focus nowadays is on smaller companies, which are like a breath of fresh air.
In this part of the market, there’s no sense of being forced to have a view on a stock – mainly because they’re so small that most investors won’t have even heard of them. And if something is too difficult, then I leave it and move on.
Yes, I might wish I’d taken a closer look if it goes up afterwards; but my focus is always on finding shares that I like the look of, rather than reacting to something just because it’s all over the news.