Different Investment Perspective
by
When we first engage with our clients, they typically ask us this question – what is the economic outlook — short-term and long-term? And this was the case, prior to the Brexit referendum in where United Kingdom decided to withdraw from the European Union (EU) and after the election of Donald Trump as the President of the United States.
But the real question our clients are asking is how can they be ensured their investment portfolio will not decrease in value or is not at risk.
What Others Do
Many investors and their investment advisors spend unproductive hours worrying about the stock market, so they needlessly worry about the economy. If you find yourself discussing and debating whether the economy is poised for growth or downward tilting toward a recession, whether interest rates are going up or down, whether there is inflation or deflation, we say STOP! Give yourself a break.
Often investors begin with an economic assumption and then invest in stocks that fit neatly within this design. We believe that this is foolish. First, no one can predict the direction of the economy or better yet, the direction of the stock market. Second, if one selects stock that only benefit a particular economic environment, you invite turnover and speculation. Whether you are right or wrong, you’ll find yourself continuously changing your portfolio to benefit the next economic scenario.
What We Do
We casually observe the economy, but dedicate little time or energy analyzing with the intent of predicting the direction the economy is headed. We take an analytical approach, rather than speculative approach, towards investing our clients’ capital.
When we invest, we see a business. We are looking for the same thing as a businessperson. A businessperson seeks to buy the entire company, and we want to purchase a portion of it. A businessperson’s number one criteria for the purchase is “how much cash can be generated by the business.” Academic finance theory dictates, over time, there is a correlation between the value of the business and its cash generating capability. So, to make a profit, the businessperson and we, as investors, should be looking at the same variables.
We prefer to invest in a business that has an opportunity to profit regardless of the economic times. Of course, macroeconomic forces may affect returns on the margin, but overall, the businesses we invest are able to profit nicely despite the unpredictability of the economy. We spent our time wisely locating and investing in a business that has the ability to profit in all economic environments, rather than investing in a group of businesses that do well only if a guess about the economy happens to be correct.