Keep Your Powder Dry

Value investors should be quick to take advantage of the opportunities provided by volatile markets.

- Mark Story

If you want to know the difference a year makes when investing, just look at the gulf in the average super fund balance, which dived from around 10% in 2017 to between -1% and -2% a year later. By all accounts, 2019 appears to be threatening even greater trepidation than last year, when the S&P/ASX 200 fell 6.9% (excluding dividends), which marked the biggest loss for the local sharemarket since 2011.

However, despite smouldering big-ticket macro issues – including the late-cycle stock sell-off, trade wars, falling GDP growth in China and, closer to home, tightening credit conditions, along with declining house prices – investors shouldn’t take overly pessimistic market commentary too seriously. That’s the view of Paul Moore, chief investment officer of PM Capital, who reminds investors how irrelevant these events can be – and with Australian shares up over 4% in January alone he’s got a point.

Moore says there’s never been a more urgent need for investors to understand that future returns will come from avoiding the continuum of negative news and focusing on how their capital is deployed over a longterm horizon. “In reality, one only needs a few good investments in their lifetime to produce attractive returns, and they tend to come around every 10 or so years.”

New way of thinking

What’s needed now, says Moore, is a fresh approach to looking at where future returns are more likely to come from. In 2019, he urges investors to recognise a tectonic-like shift playing out in the structural drivers of markets. It’s because of this structural shift that he expects the next 10 years to be more determined by the “serious investor” and less by the momentum and hype that have dominated the market and accentuated volatility over the past decade.