26 April 2023
I am a client of MVAM’s who has been asked to write a newsletter. So here it is.
As a punter with funds invested in the markets, this newsletter presents my, no doubt, naïve view of this world from the point of view of “the man in the street,” a semi-informed investor.
I imagine the aims of most investors are similar – to make their savings work hard and accumulate over time whilst minimizing the risk of loss. Perhaps there might also be an altruistic aspect – to do good in the world through making capital available to worthy ventures. To Make The World Better as MVAM would say! I imagine also that investors come in all forms. All shapes and sizes. Some knowledgeable, some not. Hands on versus hands off. Variable risk appetites. Flakey or stoic, short-term or long-term, worriers or laissez faire. How dull life would be if we were all the same. And how much more predictable would be the markets if we were.
There seems to me to be a lot of moving parts that make up the markets and so influence a stock’s price. Some respond well to deep expertise, analytical approaches, left brain thinking. By contrast, others respond to whim, more commonly called market sentiment, calling upon right brain intuition.
So, if you have the time, capability, and inclination, you may wish to examine fundamental factors. A company’s earnings and profitability, P/E ratios, cash flow or expected growth. In addition, there are technical factors such as chart patterns, momentum, and performance of industry peers. There are alternative asset classes like bonds, property, gold, or bitcoin even to consider. On the other hand, you may have a life you wish to enjoy! Time as I age is the commodity that keeps getting more precious.
I have not even spoken about the need to follow the news. News can influence just one company I have my money in, or all of them at the same time, Covid, Ukraine and climate change. Or did you see the recent collapse in the stock price of Tupperware? Probably not. Like me you were more likely to be eating sandwiches out of one of their boxes than pouring over the company’s balance sheet. And then there is market sentiment, and its psychological underpinnings. So, in addition to financial analytics, you also need to dabble in psychology and other social science disciplines to navigate these turbulent waters – a not insignificant challenge!
So, what is one to do? The finance community has acquired many idioms to steer their actions, for example “sell in May and go away” or “never catch a falling knife”. But most have been shown to have a scant evidence base. I cannot follow those. Is it possible, given my limited expertise, to dabble in the markets? Deploy a narrow strategy, without understanding the fuller picture, and come out winning? And would my winnings accrue in the longer term? And would I properly understand the risks of the strategy that I have followed? And anyway, do even the experts know what is going on? Well, I do not know the answer to any of these questions. How could I ever judge? In short, even if I get it right, I won’t know why!
So, with the foregoing in mind, I’ve subcontracted all this trauma to the professionals…and included my savings from redundant therapy fees on the credit side of the investment ledger. Win-win I would say!