Perseverance
Pfäffikon SZ, Switzerland – Fear among investors has slowly morphed into panic this past week. A storm of uncertainty is raging over the financial markets increasing the blood pressure of investors and speculators. After the oil sector now financials are also getting hit hard. Much like starting a business, successful investing is about perseverance. The late Steve Jobs, for instance, was convinced that perseverance accounted for at least half of success. Winners never quit and quitters never win.
Value
I hold the opinion that substantive value can be found on the global markets today, but it is no guarantee of short-term (out)performance. Many investors probably have no idea what they’re currently selling and what they’re getting in exchange. In doing so, their vision extends to one second. Perhaps we’ll slide further down – there’s no one that can tell you what will happen. In reality, it doesn’t really matter. On the stock market it is not 2 times 2 but more like 5 minus 1. He who doesn’t have the mental fortitude to deal with that, has no place on the stock market.
Rotation
Value investing has been performing below par the past several years, which needs no further elaboration. Stocks such as Netflix, Amazon and Facebook are the celebrated winners of 2015. Strategies based on value have missed these gains. Is now, then, the time to sell all these undervalued stocks? The answer is no. After all, it’s all about perseverance and patience. Moreover there are sufficient research findings available that show that the rotation in a portfolio adds nothing to overall yield and only helps to ensure the broker has a good year. In 2016 I have only bought one German company during the recent slide.
Catching Up
Value investing is roughly at half of its period of underperformance. History teaches us that once this period is over, the strategy manages to catch up. After all, the companies that match the value investing criteria simply keep on running. They strengthen their balance sheets, generate cash, broaden their competitive advantage, etc. I find the Dutch BE Semiconductors (BESI) to be an illuminating example of a business with excellent future prospects in combination with healthy financial housekeeping and very able management. Rather small and rich than large and poor is the motto of their CEO, Richard Blickman – and he’s right.
Successful investing is more than buying or selling a stock, option or ETF. Speculators chase all kinds of risky transactions which they cannot oversee. This can be a successful strategy for years, until one wrong transaction. Take it from me that that will happen sooner or later. The stretching of the financial spectrum often exceeds your imagination or capacity and you must ignore the clamoring of the masses.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has position in BESI and not in other above mentioned shares and has no intention of doing so in the next 72 hours.
