Stick To Your Long-term Investment Objectives

An interesting but worrying observation over the last couple of month’s volatility, is how investors are inclined to want to alter their investment objectives.

Equity market returns in the short to medium term are difficult to predict. By their very nature, equity markets may be volatile in the short-term but one needs equity exposure to a certain extent if you want any hope of protecting your capital against inflation.

We cannot stress more strongly that long term investment objectives must not be altered by emotion alone. Rather rely on good fund managers to use volatility as a buying opportunity to find shares of listed companies which are good businesses with a competitive advantage, with good earning potential offering fundamental value.

So, even if it looks like the economy is taking a hot and cold shower at the same time, why are shares prices rallying? The key catchphrase here is that fund managers are “discounting” the economic recovery! Discounting has nothing to do with a Woolies sale. Instead it means to give a current value for a future reward. Simply put:

If you believe that resource shares are going to start to earn super profits. What do you do? Hold the shares before they start to earn those profits so that you can benefit from the capital appreciation that will occur when other people also perceive that profits will be good and start to buy these shares, thereby pushing up the “sentimental” share price.

In essence, Silke Financial Services only recommends fund managers who understand the difference between the intrinsic value and the share price and do not believe in technical strategists who buy shares because they think they are going to go up! Right now there is a great deal of uncertainty to where markets are headed, and no one knows for certain just how exactly things will play out. Market performance is cyclical, and the trick is not to get greedy and stick to your their long-term investment objectives.