The Star E-dition

Narratives are simple, the truth is more complex

ANET AHERN

WE OFTEN talk about the importance of looking beyond prevailing narratives to find value.

Narratives are easy to buy into, partly because, as humans we enjoy a good story, and partly because they are simple and easy to understand. They help us to make sense of the world, and they also make it easy to buy into current market sentiment – whether it is hype or despair.

It can be challenging to express a view that is contrary to the prevailing wisdom: depending on the direction of the narrative, those who question its validity risk being branded either as naively optimistic or as “dinosaurs” unwilling to move with the times.

At PSG Asset Management, part of our process is carefully considering the assumptions on which current market narratives are based, turning them inside out and seeing whether their logic holds when subjected to scrutiny.

Prevailing narratives often come with a big cautionary footnote, which most investors overlook in their hurry to join the market mayhem.

Narratives not only apply to the stock market, but also to our understanding of the changing world in which companies operate. They make it seem as if the future is already written, with the outcome determined well in advance. By extension, anyone wanting to benefit from the trend simply has to get on board.

The online shopping revolution provides a case in point. When the Covid-19 pandemic struck, markets reacted wildly. One of the prevailing narratives that has emerged is that brick-and-mortar retailers are dead, and the future of shopping is online, and online only.

This story has great appeal and fits our perception of the world, but it also makes it easy to forget that the trend is not as one-directional as the narrative would imply. Shopping is a sensory experience, and it has a social aspect – and these are not that easy to replicate online. In fact, some online retailers, such as Amazon and Casper (which sells mattresses), have opened physical stores, because real-life experiences help to drive online sales.

More fascinating, however, is that omnichannel shopping may hold greater benefits for traditional brickand-mortar companies. These have often lagged woefully behind the online retailers, but one benefit of slow-to-market implementation is that you can take the best lessons from tried-and-tested recipes and avoid a costly learning curve.

The benefit, however, emerges in how the market has priced these companies. Although the share prices of online retailers have soared, those of brick-and-mortar companies have not yet priced in the effect of greater online sales, and so there is a window of opportunity to acquire these businesses before their share prices adjust to compensate for a deceptively simple narrative.

Similarly, it is easy to become excited about e-cigarettes and their ability to breathe life (a rather poor turn of phrase!) into a mature tobacco industry in the face of the growing opposition to and the regulation of smoking. E-cigarette alternatives have given this sector a renewed lease on life, but their own narrative is complex and nuanced, with their own lobbying, health concerns and regulation with which to contend.

We have also previously pointed out the deceptively simple narrative surrounding SA Inc. shares (Jse-listed companies whose business is predominantly within our borders), which has seen these shares largely being written off, even where they are generating revenue from non-south African sources. Examples abound.

Whatever the headline-grabbing narrative of the day, there is usually more to the story than meets the eye. We aim to see the bigger picture and find the opportunities for our investors to benefit from these mega-trends.

Often, the biggest benefits are not found where most investors tend to look. For patient investors with a long-term perspective, there can be immense benefits in investing in the unloved sectors of the market where future potential is often overlooked in favour of current hype.

Current market conditions have in many cases set up prevailing narratives as conventional wisdom, fuelled by widely available media opinions and news. Although this creates many pitfalls for unwary investors, it also creates immense opportunities for those willing to look beyond the noise.

We remain focused on unlocking long-term value for our investors. At times like these, we believe differentiated portfolios such as ours are more valuable than ever as part of a holistic investment solution.

Anet Ahern is the chief executive of PSG Asset Management.

Lifestyle

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2021-06-12T07:00:00.0000000Z

2021-06-12T07:00:00.0000000Z

https://thestar.pressreader.com/article/282097754648695

African News Agency