Millennial investor: the financial diary of a twenty-something's quest to invest her way on to the property ladder
One of the biggest challenges of investing is the hunt to find great companies whose potential has been overlooked by other people.
This can happen for a number of reasons but often happens because analysts – the supposed “experts” – have lumped one company together with others based in the same country or industry that are doing badly. They assume that means this company will suffer too and steer well clear. This is a big mistake.
Take British stocks, for example. Britain is not in the best position at the moment. We are teetering on the edge of another national shutdown, while at the same time careering towards the exit door from the European Union with little idea of what will happen after we topple through it.
Unsurprisingly, share prices of British companies have performed poorly. Over the past year the FTSE 100, an index tracking the largest British companies, has fallen by 18pc, while global stock markets have risen by 8pc.
But share prices are, after all, just a reflection of investors’ confidence. So should we be tarring all British stocks with the same brush?
A lot of my friends are using the spare time (and cash) they gained during lockdown to start playing with stock markets. But the companies they say they’re investing in – Tesla, Netflix, Amazon, Zoom – are not only very predictable but also all American.
True, the American stock market has been doing very well, mostly thanks to these technology companies. But people have already realised this and jumped on the bandwagon, pushing share prices up.
Shares in Tesla, the electric car maker, now cost five times as much as they did in January and teenagers have been posting videos of themselves on TikTok, a video sharing app, boasting about how they’ve made thousands on it.
According to stock broker Interactive Investor, the forward price to earnings ratio, which compares expected earnings to share prices, is currently about 16 for the British stock market. For the American market it is 23. This suggests it is much cheaper to invest in Britain.
Despite the stereotype that the FTSE 100 is full of fuddy-duddy banks and dying oil companies, there are British stocks that are tech-savvy and doing exactly the same thing as Tesla and streaming site Netflix are doing in their respective markets: dominating them.
I recently decided to invest some money in property website Rightmove. Like these big tech stocks, it is a leader in its field, with a market share of more than 75pc, according to its latest annual report.
How does it differ from them? It is much cheaper. Its p/e ratio is currently about 43, whereas for Netflix the figure is 94 and Tesla is 1,157.
What that boils down to is that Rightmove is a high quality, fast growing company that costs much less than some of the much larger and better known American alternatives.
The stock was sold off heavily in March, along with the rest of the British market. I invested in it towards the end of June, when the share price was still around a quarter lower than it was before the pandemic.
Since then, the Government has announced a temporary stamp duty cut, which has turbo-charged the property market, and property prices have risen as people look to move house after lockdown. Rightmove’s stock has gone up by about 20pc.
This growth seems to be backed up by what I see around me. Almost all of my friends are desperately searching on Rightmove for a new home – whether to rent or buy – with even an inch of outdoor space.
It hasn’t quite reached the brand recognition of Hoover, but its name has become a verb in itself. I’ve lost count of the number of times I’ve heard: “I’m Rightmoving it.”
Will its success continue beyond today’s house-moving “mini boom”? In my opinion the death of high street estate agencies is as inevitable as the demise of high street retailers that fail to keep pace with the digital world.
I do need to keep an eye on Rightmove’s growing competition from websites such as Zoopla and OnTheMarket, though.
I am concerned that a second lockdown will push millions of people out of work and make the idea of buying a new house seem like a far-fetched luxury. But at the end of the day, people always need somewhere to live and, because Rightmove covers properties to rent as well as to buy, it should be somewhat protected if people start struggling to keep up with their mortgage.
In case my bet doesn’t pay off, I invested only a very small amount of my £10,000 pot in the company – just £300.
I’ve handed the majority of my portfolio to the experts by investing it in funds where professional managers pick stocks for me. But after realising how inflated Tesla’s share price is and noticing that two of my picks, the Scottish Mortgage investment trust and Baillie Gifford Positive Change fund, are each between 10 and 15pc invested in it, I’m nervous.
For the moment, I’m going to keep trusting the experts but that’s something I will definitely be keeping an eye on.
Did I make the right decision? Email [email protected]