Understanding the varying emotions that you or another investor might experience can really help explain the relationship between feelings and judgements towards the market. The below diagram shows the well known expression of the emotional roller-coaster experienced when investing, so next time you are investing, bear the chart in mind and ask yourself: “Where am I right now?” Optimism to Euphoria Whether the market is picking up, or it just starts with a positive hunch, the entering of the market is always backed by a feeling of optimism. With excitement and thrill, there is confidence in trading until euphoria is reached. At this stage in the cycle, maximum financial gain is reached. However, buying at the top will increase the chance of compounding costs with emotionally driven decisions. Anxiety to Panic As reality starts to set in, investors try to ignore bad news and move onto denial. At this point investors are reluctant to sell at a loss and volumes dry up. Sooner or later, investors are forced to sell moving through feelings of fear, desperation and panic. Capitulation to Optimism Forced by a lack of liquidity, investors often sell at a loss and remove themselves from the market due to reasons of despondency and depression. At the end of the cycle, it is not easy to start again at optimism, however, take too long and you might miss out on the recover, which can be fast and powerful.  

Safiya Bashir on 14/01/2016

Sainsbury’s (LON:SBRY) shares dropped dramatically last week after it emerged that a secret offer for Home Retail (LON:HOME), made back in November, had been rejected. But investors are a little baffled – why are Sainsbury’s so keen on getting hold of the home and DIY group? Fortunately, Sainsbury’s released a presentation today designed to make their thought process a little clearer. It all boils down to three main reasons: 1) Safety in a declining sector It’s no secret that supermarkets have having a tough time at the moment, and all of the Big Four are pursing strategies in order to stay afloat. Sainsbury’s strategy is to branch out into other areas, becoming a ‘one-stop shop’ for items other than groceries – as CEO Mike Coupe says, Sainsbury’s aspiration going forward is to serve customers “whenever and wherever they want to shop”. As a result, Sainsbury’s has already tried to boost its presence in non-food, which has higher profit margins, by growing its Tu clothing range and selling homewares. Acquiring a company such as Home Retail, who own the Argos and Homebase brands, is the next logical step in that process. 2) Increasing customer base Shoppers continue flock to cheaper stores such as Lidl and Aldi, and the price war between the Big Four supermarkets isn’t drawing them back – so Sainsbury’s plan is to capitalise on shoppers laziness, and offer them everything they need in one place. Sainsbury’s estimate that 2/3 of households shopped at their supermarket last year, with 2/3 also shopping at Argos. By selling both products in one place, less shoppers need to go to two different stores and, ergo, Sainsury’s customer base has expanded. Whilst investors may have been confused by the match up between the two Groups – Argos has been called a “working-class brand” while Sainsbury’s appeals to the middle classes – this strategy only serves to encourage both sets of shoppers into one store. “We know that there is a benefit in bringing the two companies together and there are more opportunities combined than separate,” Mike Coupe commented. 3) Streamline costs Sainsbury’s plan is, when the lease runs out on Argos stores, relocate them into large existing Sainsbury’s. 40 percent of Argos leases expire within the next four years, meaning the opportunity to streamline costs and cut rent is an immediate option. As for Home Retail’s DIY chain Homebase, suspiciously little has been said about it in either the 22 page presentation or their 30 minute call to investors – given this, it seems likely that the Homebase arm will be sold if the deal goes through. Sainsbury’s originally sold Homebase in 2000 to Schroder Ventures for £969 million, and sources have said that there is no desire to own it again. Under British takeover rules the supermarket now has until February 2nd to make a firm offer or walk away.

Miranda Wadham on 13/02/2016

Chancellor George Osborne warned last week that the UK faces a ‘cocktail’ of threats from a slowing global economy, something that is likely to have a knock-on effect on the British public – recent figures have confirmed that pay increases are likely to drop in 2016. A recent payroll survey by reward consultants Paydata has revealed that employers setting their 2016 budget will offer few – if any – pay increases to staff this year. Contributing factors include the influence of inflation, CPI sitting at zero and RPI sticking at one percent, but also a new and more controversial issue raised by businesses – the introduction of Gender Pay Gap Reporting due to be implemented in April. Employers feel that they need to address any potential equal pay concerns before they reward pay increases. Whilst the trend over the years has been for businesses to pay individually determined increases rather than an across-the-board bonus to all staff, the new legislation puts the current system on stand-by until companies are equipped with guidelines on pay rewards by the government. Like previous industry trends, sectors will vary in their pay increases; Professional Associations and Institutes pay marginally below the overall figures, and those located in London will generally increase due to recruitment and retention pressures. A number of commentators, including the CBI, predicted last year that inflation would increase this year towards the governments two percent target, however these forecasts now need to be reviewed as it’s estimated that wage inflation will not pick up. Further reward surveys are expected to be released in the Spring, which could reveal some interesting details on the adoption of equal pay reporting.

13/01/2016