We cannot control global events and so it is dangerous to rely on macro data
Investors appear to be very concerned about the potential impact of global economic, political and environmental events on investment returns in equity markets. However, focusing on these kinds of events can often paralyse investors and stop them from making sound investment decisions. In my view, the main thing that really matters when you buy any asset is the price that you are prepared to pay and the value you are receiving. It isn’t easy to do the necessary research to determine value, and one is easily distracted by exhaustive news flow on macroeconomic issues. Given the insatiable appetite for information and forecasting, economists and professional commentators feel compelled to provide their opinions and projections. However, as we often lament, they rarely get it right. Yet, investors continue to listen to these comments.
It is crucial to be disciplined about having a margin of safety
The disciplined investor knows that it is impossible to predict global factors with any real consistency, and therefore it is impossible to account for these in valuations. The best that you can do is to buy assets with a margin of safety that protects you from mistakes, omissions, assumptions and the inaccurate predictions of economic and political commentators.
Focus on factors that drive performance
Factors such as strong population growth, a stable political environment, a strong dividend paying culture amongst companies, and an abundance of natural resources continue to underpin the long-term performance of the Australian market. However, if you aim to do better than average, price and value must be at the heart of every investment decision. Buying businesses (stocks) for much less than they are worth provides the best potential to outperform the market and the greatest protection from permanent loss.
At Allan Gray, we focus our efforts on fundamental analysis and the facts
By dealing in fact rather than opinion, and irrespective of our best efforts, investing is inherently uncertain. Managing money globally, according to a disciplined contrarian, fundamental and long-term approach for over 40 years has yielded very good outcomes for our clients. To maintain our successful long-term track record, the focus continues to be:
- The long term
- Price and value
- Ensuring that we maintain a margin of safety
- Understanding why a seller is selling
- Remaining dispassionate regardless of any profits or losses
- Accepting the odds, quite simply because nobody is right all the time, and lastly
- That you cannot do the same as everyone else and get better than average results