Time frames and iron ore

Time frames and iron ore

So much of investing comes down to time and perspective.

In the short term, the market is awash with random noise – and one of the best things an investor can do is keep it away from their investment decision-making.

News desks, of course, have a different imperative. They are in the business of packaging the daily noise into some sort of content that will interest people. There’s nothing wrong with that, nor with reading and enjoying the content – some of it will be helpful, but it needs to be kept in perspective.

The iron ore price has been an amusing case in point recently. On several occasions recently, the headlines have alerted us to dramatic “plunges” that have slashed the value of Australian miners.

Yesterday was a little different – according to the headlines, the iron ore price has “surged”.

This surge can clearly be seen in the chart below. It is the irrelevant uptick right at the end of the chart; one of numerous irrelevant upticks that have punctuated the decline over the past year.

My colleagues (Andy Macken in particular recently) have written at length on the dynamics of iron ore prices (see here and here) and we have been warning investors about the risk of investing in companies exposed to the commodity for several years. The underlying issue is a dramatic increase in supply, unmatched by growth in demand. This has depressed iron ore prices in the past year, and the possibility of material slowdown in China threatens to add further grimness to the picture.

The future is unpredictable, and ongoing price pressures may not unfold as anticipated, but you do need to step back from the day-to-day to have any chance of making sense of the medium-term picture.

MORE BY TimINVEST WITH MONTGOMERY

Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.