Turn off the noise
The market has been swinging like a violent pendulum in the past week. One day it’s up, the next it is down. The media have been quick to offer explanations, but all this really does is create noise for investors.
Let’s take a look at the machinations of the week to date, and the headlining stories from each day.
Last Wednesday, the ASX200 closed up 1.63 per cent after China’s central bank signalled it would prevent a credit crisis.
On Thursday, the ASX200 closed up 1.68 per cent, on weaker than expected US GDP data and a change in the Australian political landscape.
On Friday, the market took a breather for the end of financial year, with the ASX200 closing 0.18 per cent lower.
The start of the new financial year saw the ASX200 fall by 1.92 per cent on Chinese manufacturing concerns.
On Tuesday, these falls were more than reversed, with the ASX200 closing up 2.63 per cent after the RBA held the cash rate stable.
And then yesterday the ASX200 fell once again, this time by 1.86 per cent.
The efficient market hypothesis postulates that markets fully and accurately reflect all existing and new information, but it’s hard to imagine the recent daily market moves are justified by changes to fundamentals.
Recent events underline why value and not price should be the focus with your investments. If price has been your focus this past week and you’ve watched this crazy pendulum every day, you’re probably feeling very confused right now about the state of your investments.
We must reiterate that short-term market movements are largely noise. They make great headlines for newspapers, but they are nothing more than a distraction when it comes to assessing the intrinsic value of companies. Do yourself a favour and tune this noise out – your time is better spent on any number of other endeavours, and it will help prevent you from making any irrational decisions with your investments.
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.
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david.wu.90038882
:
Agree. Any tips on how to turn off human curiosity?
Andrew Legget
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One of the things i have learned is that the best way to approach investing on markets is one of almost zen detachment from it. An acceptance of the short term volatility and an ability to sit on your hands and do nothing whilst it happens.
Instead too many people confuse activity with achievement even if there is nothing but a guess or panic decision behind that activity.
Edward V
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I agree totally Ben/Andrew. Imagine just for a moment that company securities had to be valued similarly to housing or commercial propety, ie irregularly. Then, as a potential investor, I’d be forced to look at what I’m buying and the value I receive for my dollar, rather than focusing on what someone thinks of what other people think its worth. For example, a focus on tangible productive assets, a loyal customers, honest and capable management, etc.
I know property people will say that shares are volatile but with property, they can see and touch it, ie, it’s tangible. Well, yes, but then so are the intrinsic assets of a company, but if they compare like-for-like, “shares” are similar to.a property’s title deed, and a residential property itself is no different in concept to Woolies’ chain of stores and distribution centres, or CBA’s local branch (tangible property).
The point is, the focus should be the business, not its securities just as property lovers focus on their home snd not the title deed held by their bank. I’d rather let the management I have ’employed’ to make all the many and regular decisions they have to make to ensure full use of the productive assets, systems, staff and brand that I’ve invested in.