Andrew Page |
I was asked the other day whether, as a long term investor, I paid much attention to interest rate moves. Well, perhaps unsurprisingly, the answer was ‘not really’. But I would also extend this to other considerations, including political and more general economic factors. To understand why you need to appreciate that, when you plan to be a shareholder over a long stretch of time, it is inevitable that you will face a wide array of challenges at some point or another.
Over time it would be naive to expect the political and economic landscape to remain static. It never has, and it never will. So you are left with two choices. The first is to spend considerable time and effort trying to predict how the political and economic landscape will change and in turn their likely effect on share prices. You will then adjust your portfolio accordingly. Needless to say, this approach is fraught with errors (which can be very costly), and it magnifies your transaction and taxation costs. Nevertheless, when done well it can yield substantial returns.
The other option is to simply forget about these factors. Easier said than done of course, but it actually makes a great deal of sense as long as you are exposed to the right companies. Think about it like this: regardless of what the future brings, profitable, well run businesses, with conservative and serviceable debt and healthy, reliable cash flows will always be able to weather unexpected challenges better than most other companies, particularly over the long term.
Will the outcome of the US mid-term elections have an impact on the market? Does the Federal Reserve’s decision on stimulus measures have the potential to move market sentiment? Of course they will! And so too will a plethora of other factors, but the point is that no matter what the outcome, the longer term impact will always be of less significance for quality, well run businesses than it would be for unproven, speculative ventures.
This ‘bottom up’ approach has long been endorsed and practiced by Warren Buffet, who often dismisses the importance of rate moves. Wisely so in my opinion.
Make the markets work for you
Andrew Page
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