Rugby Fans vs Investors: Investing without Emotion

by Deon Gouws (Chief Investment Officer at Credo Wealth in London)
Rugby Fans v Investors

The Springbok Bubble - Lemmings overpaying, soon to sell...

If you ever wanted a free lesson in how easy it is to lose money in the stock market, you only need to follow the various twists and turns of the Rugby World Cup (RWC) - and the way in which the supporters of the South African team have been reacting to it over the last few weeks.

If Springbok Rugby had been a share (JSE Securities Exchange short code: SBR), thousands of lemmings would right now be overpaying for it in the run-up to next week's quarter final. And those same suckers will in all likelihood soon be queuing to get rid of the share (assuming they can still get anything for it).

Rugby Union - South Africa v Samoa - IRB Rugby World Cup 2015 Pool B - Villa Park, Birmingham, England - 26/9/15 South Africa line up during the national anthems Reuters / Rebecca Naden Livepic.

Have you noticed how practically each and every one of the approximately 25 million red-blooded rugby experts in South Africa who lambasted their team after the shocking loss against Japan a couple of weeks ago, suddenly decided to change their collective mind and started believing that their team might in fact go all the way in this year's RWC?

In my humble opinion, this is a proxy case-study in behavioural finance if ever there was one, with people's emotional experience of random short-term events totally clouding their judgment - likely to be remembered as a boom-bust cycle of note.

Let's speculate how SBR's share price might have performed over the last couple of years (we'll assume a listing price of 100 cents at the beginning of 2014 for purposes of the analysis):

June 2014: The SBR share price goes up by 10% after beating a World XV (nogal), Scotland and Wales (twice). Resulting share price: 110 cents. Not too much price action here; these were home fixtures against relatively weak opposition, after all.

August - October 2014: SBR falls 25% after the Boks lose against both New Zealand and Australia in the 2014 Rugby Championship. Furthermore, the SA team only manages to scrape a 2-point win in a nailbiting match against lowly Argentina.
Resulting share price: 83 cents. (Note: we'll be kind to the boys in green and round the price up in each instance - the poor buggers clearly need all the help they can get at this stage.)

November 2014: SBR falls 50% after the Springboks lose a test against Wales for only the second in the 108 years that the two teams have played one another. The Boks also lose against Ireland, and beats arguably the weakest English team since the First World War by all of 3 points. Resulting share price: 42 cents.
Blue chip status long gone; one or two value investors (with a sense of adventure) piling in.

July 2015: SBR tumbles by another 30% after losing against both Australia and New Zealand in one dark 7 day period. Team selection is dubious, substitutions during the matches are laughable, and decision-making under pressure reeks of desperation. Resulting share price: 30 cents. Starting to attract the attention of a few (mostly patriotic) small capitalisation fund managers.

August 2015: The Springboks lose against Argentina for the first time in history. As a result, the team finishes bottom of the log in the 2015 Rugby Championship. SBR remains unchanged at 30 cents. Markets are, after all, discounting mechanisms - everybody knows the team is totally useless by now; they merely performed in line with expectations.

September 2015: The discovery of a fossil named Homo Naledi (an ancient human relative, estimated to date back more than 2 million years), is announced in Johannesburg. A week later, the Springbok squad for the upcoming RWC is announced; Homo Naledi himself is not only selected, but he is in fact one of the younger members of the team. Rumour has it that Springbok coach Heyneke Meyer might lose his job, following which the SBR share price declines by 10%. SBR then declines by a further 20% when it turns out that Heyneke Meyer will in fact not lose his job. Resulting share price: 20 cents. The credit rating agencies are getting nervous; liquidators are licking their lips.

September - October 2015: The long-awaited RWC tournament takes place in the UK. In their first match, the South Africans lose against Japan. Yes, Japan. No, I didn't know they played rugby either. As a result, the Brave Blossoms (isn't that a cute name for a rugby team? Especially one that's better than the Boks?) maintain their 100% record against South Africa's finest. The SBR share price remains unchanged at 20 cents. Markets are discounting mechanisms, remember?

7 October 2015: South Africa's last group match before the knock-out stage of the tournament, is against the USA - a team populated by a motley crew of trust fund kids who are too small for basketball, too slow for gridiron and without the requisite skills to make it in baseball. The ball bounces right for the Springbok team approximately 43 times in a row. They end up beating the Americans by 64 points.Bryan Habana touches down for 3 tries, equalling Jonah Lomu's RWC scoring record; halfway through the second half, rumours abound that SBR will unlock value by unbundling Habana and listing him separately on AltX. The SBR share price doubles by half-time, and again when the final whistle goes, thus closing at 80 cents. Janet Yellen says, and I quote, "I told you so"; even Hugh Bladen is phoning his stock-broker.

17 October 2015: The Springboks face Wales in the first quarter final of the RWC. The Welsh squad contains no less than 9 players who qualified by birth to play for England, but decided to change allegiances when they realised they were not quite good enough to be selected. Which ultimately did not bode well for Welsh chances, judging by England's performance in the tournament. The Springboks beat them with relative ease. SBR doubles again; at 160 cents, a leading sell-side analyst states "This is where I start looking ahead" markets are discounting mechanisms, after all, in a 160 page note, "it's a steal"; another refers to the share as "a dripping roast, with value seen all the way up to R6.40".

One week later: The Springboks have to contend with New Zealand in the semi-final of the RWC. Investors forget that the Sprinboks have lost six matches out of seven against the All Blacks since the previous World Cup tournament. As has happened many times in the past, and as will no doubt happen often again, investors start believing that trees do in fact grow to the sky. SBR trades at 200 cents when the semi-final kicks off, but loses 5 cents every time that Richie McCaw touches the ball.
By half-time, the share is suspended at 10 cents. It all comes to an inevitable conclusion: after getting crushed by the All Blacks, the Boks get crucified by the press. A commission of enquiry is called for.

Investors blame investment bankers; investment bankers blame accounting firms; accounting firms blame the rating agencies, rating agencies blame an uninformed public who bought the share; the public blames the coach; the coach blames the previous coach; the previous coach blames the quota system. Meanwhile, Pieter de Villiers takes a swing at Naas Botha; Mark Keohane points a finger at Francois Pienaar; and Winnie Mandela says it's all the fault of apartheid. If they hadn't been dead, some people would have blamed Louis Luyt, Steve Tshwete and Hansie Cronje as well. Kevin Pietersen has the tattoo of a pronking Springbok surgically removed from his inside thigh. Doc Craven turns in his grave.

But who cares whose fault it is. None of us will ever make the same mistake again.

Not at least until the next World Cup, anyway.

By Deon Gouws
Chief Investment Officer at Credo Wealth in London

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