Recently I attended a talk by Dr Zeid Ayer ( a Senior Portfolio Manager of principle Global Investors, USA)
And this is what I learnt summarized….
Summary of Short Term Troubles:-
Financial Markets
-All major equity markets are well into bear territory
-Government globally have injected hundreds of billions of USD into the markets and lowered short term official interest rates
-Credit is not cheap and can be difficult to source
-Financial institutions have written off approximately USD600 billion in assets
-Oil is still expensive (despite having dropped a lot)
-Many commodity prices have corrected
-Volatility measures have been at all time highs
Real Economy:-
Global economies slowing
- contraction in many of the 190 countries
- Jobs disappearing – unemployment up
- Housing markets continue to struggle
- US Misery index (unemployment and inflation) is 11.3% as of July
Quote: Bill Miller, CFA – Chairman and CIO –Legg Mason Capital Management
“The problem is that real risk and perceived risk are 2 different things. And that is where people get into trouble, because they perceive risk to be high when prices are low, and they perceived risk to be low when prices are high. That is a psychological problem that most people have.”
Quote: Benjamin Franklin(1706-1790) on Uncertainty
“All human situations have their inconveniences. We feel those of the present but neither see or feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.”
Volatility:-
-Uncertainty can create market volatility
-Short term –hear noises of bulls and bears(Don’t miss the forest for the trees)
-Long term- market don’t move in a linear manner but in cyclical patterns, It is wise to therefore invest and stay invested for long term.
Time in the Market vs Timing the Market
Between 80 -90% of the returns realized on stocks occurs between 2-7% of the time. So if you are out of the market when stocks make their move, your portfolio is doomed to under-performance.
Growth of $10,000 in an Investment that Perforned Similarly to the S&P 500 Index
(From December1991 to December 2006)
Stayed in Market Entire Time - $45,579
Missed 10 Best Days - $28,397
Missed 30 Best Days - $14,029
Missed 50 Best Days - $8,141
(source: Bloomberg.)
Are there opportunities for long term gains?
Some Economic Positives
Government’s globally are acting to restore order to financial markets
- Injecting liquidity into the system
- Lowering official interest rates
- Fiscal stimulus
- Injecting new equity into financial institutions
- Guaranteeing some deposits
Commodity price, e.g., Oil and Food have subsided
- Lowering inflationary concerns
- Reduces input costs
Productivity is strong in many countries, e.g US
Flexible economies are already adjusting
Transactions are occurring:
- Sovereign Wealth Funds
- Private market transactions, e.g, companies associated with Warren Buffett
Potential long term gains?
- in the case of equities.
Many equity markets have been sold off in an indiscriminate manner
Historically, times like these have provided attractive long term opportunities
No matter what the investment environment, we believe there is value by focusing on selecting stocks which exhibit the three pillars, namely:
- Improving and sustainable business fundamentals
- Attractive relative valuations
- Rising investor expectations
“Time in the market rather then timing the market”
It is worth remembering that a large percentage of out-performance is usually derived in only a few trading days of every year. Miss those days and that performance is lost forever. Then look to minimize risk and maximize returns by having a well diversified portfolio;
Opportunities exist in the market today, and disciplined stock selection over the
months ahead is likely to be well rewarded over the full investment cycle.
And this is what I learnt summarized….
Summary of Short Term Troubles:-
Financial Markets
-All major equity markets are well into bear territory
-Government globally have injected hundreds of billions of USD into the markets and lowered short term official interest rates
-Credit is not cheap and can be difficult to source
-Financial institutions have written off approximately USD600 billion in assets
-Oil is still expensive (despite having dropped a lot)
-Many commodity prices have corrected
-Volatility measures have been at all time highs
Real Economy:-
Global economies slowing
- contraction in many of the 190 countries
- Jobs disappearing – unemployment up
- Housing markets continue to struggle
- US Misery index (unemployment and inflation) is 11.3% as of July
Quote: Bill Miller, CFA – Chairman and CIO –Legg Mason Capital Management
“The problem is that real risk and perceived risk are 2 different things. And that is where people get into trouble, because they perceive risk to be high when prices are low, and they perceived risk to be low when prices are high. That is a psychological problem that most people have.”
Quote: Benjamin Franklin(1706-1790) on Uncertainty
“All human situations have their inconveniences. We feel those of the present but neither see or feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.”
Volatility:-
-Uncertainty can create market volatility
-Short term –hear noises of bulls and bears(Don’t miss the forest for the trees)
-Long term- market don’t move in a linear manner but in cyclical patterns, It is wise to therefore invest and stay invested for long term.
Time in the Market vs Timing the Market
Between 80 -90% of the returns realized on stocks occurs between 2-7% of the time. So if you are out of the market when stocks make their move, your portfolio is doomed to under-performance.
Growth of $10,000 in an Investment that Perforned Similarly to the S&P 500 Index
(From December1991 to December 2006)
Stayed in Market Entire Time - $45,579
Missed 10 Best Days - $28,397
Missed 30 Best Days - $14,029
Missed 50 Best Days - $8,141
(source: Bloomberg.)
Are there opportunities for long term gains?
Some Economic Positives
Government’s globally are acting to restore order to financial markets
- Injecting liquidity into the system
- Lowering official interest rates
- Fiscal stimulus
- Injecting new equity into financial institutions
- Guaranteeing some deposits
Commodity price, e.g., Oil and Food have subsided
- Lowering inflationary concerns
- Reduces input costs
Productivity is strong in many countries, e.g US
Flexible economies are already adjusting
Transactions are occurring:
- Sovereign Wealth Funds
- Private market transactions, e.g, companies associated with Warren Buffett
Potential long term gains?
- in the case of equities.
Many equity markets have been sold off in an indiscriminate manner
Historically, times like these have provided attractive long term opportunities
No matter what the investment environment, we believe there is value by focusing on selecting stocks which exhibit the three pillars, namely:
- Improving and sustainable business fundamentals
- Attractive relative valuations
- Rising investor expectations
“Time in the market rather then timing the market”
It is worth remembering that a large percentage of out-performance is usually derived in only a few trading days of every year. Miss those days and that performance is lost forever. Then look to minimize risk and maximize returns by having a well diversified portfolio;
Opportunities exist in the market today, and disciplined stock selection over the
months ahead is likely to be well rewarded over the full investment cycle.
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