Jonathan Marriott, Chief Investment Officer
On the 18th April 1930, the BBC 8:45 news announced, “there is no news” and played piano music for the next fifteen minutes. Today we have multiple 24-hour news services vying for our attention. The Bloomberg channel alone proudly boasts over 2,700 experienced journalists in 120 countries. On top of that, they have independent pundits and industry experts also contributing. All of them competing for our attention and the latest sound bite. No one is interested in a moderate view; if you say equity markets will be up 5% next year, who is bothered? If you say it will be up 40%, or more alarmingly, down 40%, they want to know all the gory details. My role over the last eight years at LGT Vestra, has often been to respond to the more extreme views and calm clients’ fears. Our motto may have been taken from the war time poster “Keep calm and carry on”. How I wish for a return to “no news”!
The news flow today is incessant at all levels. When looking at individual companies, one quarterly earnings season is barely over before the next one starts. Each announcement is pored over by analysts looking for the slightest changes of direction to make their reports stand out. For the senior management of companies appointed with the approval of shareholders, this detailed quarterly analysis makes long-term decision-making challenging, particularly if it may have a negative short-term impact.
Commentators often focus on politicians’ first hundred days in office to see what direction they are setting. This may be their one time in power when they have a clear mandate for change. As the next elections near, making the right long-term decisions becomes harder and short-term gains more important to secure re-election. In the US, with protracted presidential campaigns interspersed with mid-term elections, politicians have hardly any time where long-term decisions can be made without having to worry about the short-term implications.
When we set up a portfolio for a client, we talk about the investment horizon. For a balanced portfolio we may be talking three, five or even ten years, or longer. However, we report quarterly and with online reporting, our clients may view the minutiae of moves in their portfolio on a daily basis. This combined with the daily news flow can create a wall of worry. When managing portfolios, we are making long-term decisions, but still have an eye on the twists and turns we might see in the market daily. Keeping calm in times of turbulence is difficult, but usually the right thing to do. When markets are sharply lower it feels hard to buy, but that is often the right time to do so. If you have nine people on a committee, three of which are always bullish, three are swing voters, and three are always bearish, then when markets are up the bulls speak loudest, and convince the swing voters. However, at the time markets are down, the bears will tend to speak the loudest, persuading the swing voters the other way. Thus, there is a tendency to buy what is already up and sell what is already down. We need to guard against this if we want to deliver good long-term returns.
As we enter the New Year, the COVID-19 pandemic continues with the Omicron variant remaining a concern and as the year progresses, we may see other variants emerge. Geopolitical risks remain high, with China in the East China Sea, and Russian troops amassed on the border with Ukraine. Inflation, driven by supply chain constraints, is the main concern on the economic front. Central banks and governments are beginning to unwind their actions taken to counter the pandemic’s economic damage. In short, there are plenty of things to worry investors which may increase volatility in the New Year. However, it also means that there appears to be plenty of cash waiting to buy the dips and support longer term returns. We may not look at the most fashionable things in the market, but we look for companies and managers with quality earnings that can compound successfully over time. On a daily, monthly, or even quarterly basis, we will not always be top of the pile, but we will aim to be so over the three, five or ten-year investment horizon.
Warren Buffett once said, “beware of the investment activity that produces applause; the great moves are usually greeted by yawns”. Remember, yawns don’t make headlines and ignoring the market swings on daily news flow may be your most profitable New Year’s resolution, if hardest to keep.
We have many commemorative international days to draw attention to campaigns and to commemorate events. Without any hope of it happening, I would like to designate the 18th of April “International No News Day”, when nothing should be announced or commented on, and all news channels should play music. As it is, we will continue to respond to questions raised by short-term news while endeavouring to make the right long-term decisions for our clients.
We wish you a merry Christmas and a happy New Year.
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