Share market cycles can drag you through the forest of post-election bad news and get you bludging along, with the stock market in the driver’s seat.
Over the years I have found that an effective investment management strategy is one that enables investors to not obsess about the consequences of a five-year bull market. You’re not really making much money on the run, but you do have time on your side and the stock market’s future trajectory is going to be really difficult to predict.
Your reasonable outperformance will just have to support a long-term view. The question, at every moment of the downswing, is this: Is this the bubble about to burst? If that bubble were to burst now, who knows what would happen next. Or if we finally get things right and see the recovery through a gradual cycle, and the markets will move on for another 40-year run of impressive performances.
Let’s just say that the past couple of years have been — for investors generally — a long way from expectation, and this is no reason to give up. Most analysts and commentators will not cut their decade-plus time horizons short because the majority of public and private activity is really not looking up. Growth globally is weak, so earnings of corporate giants are not going to look as sharp as in the past.
We are still at an interregnum, not a peak, and opportunities are out there. Forget about what is happening right now. When times get tough as a way of running a private portfolio, buy just enough to dampen the bad news and stay out of the way. This is also true in the public markets. So in the most dire circumstances — what should you do?
What has always served me well is finding industries that offer lots of potential and cutting your losses. This works well now and always in the various investment cycles that I follow. The secret is to have the expertise and the patience to wait for a recovery.
I have tried a different tack in recent years — focusing on a couple of carefully selected sectors for further investments. Each sector will have its specialisms, and some sectors have more fundamentally attractive potential than others. Examples include consumer staples and media, financials and natural resources. But often this is not just about the sector. Often it will just be about companies that are broadly reasonable businesses and pay good dividends. They will have a reasonable or high growth profile as well.
In this investment approach, we favour companies that we think represent reasonable companies — although it always pays to do your own homework. There is risk that the broad market will fall further — but the easier risk is one of not getting back in.
While holding through good times, investors will sometimes get humbled by bad times. This is something you can live with if you have the patience to wait for opportunities that are out there, because the longer it takes, the better your chances.
A bad economy is not a chance to compound your losses — it is a chance to set up the game board on which you have learned from the bad days and positioned your next investment strategy on a more solid platform.
A good market is a daily wake-up call for some politicians, so let’s hope they all learn to take their eye off the ball.