Do you always get what you pay for?
”Quality is remembered long after price is forgotten” (Aldo Gucci)So half way through a year that seems to have lasted forever and whilst we are still not completely “out of the woods” in respect of Corona Virus, we can at least see the exit.
Markets continue their recovery post March crash with data being ..
FTSE +1.5% -18.2%
Nikkei +1.9% -5.8%
SSE +4.7% -2.1%
MSCI EM +9.0% -5.0%
MSCI World +2.5% -6.6%
S&P 500 +1.8% -4.1%
And with currencies USD losing a little ground, AUD being the standout performer, data as follows:
GBP -0.3% +6.5%
EUR -1.2% -0.4%
JPY +0.2% -0.9%
AUD -3.4% +1.9%
CNY -1.0% +1.3%
So despite a couple of wobbles, one particular day seeing markets fall over 5% in a single session, the major markets in the US all had one of their best quarters in history. The Dow’s 16% rise it’s best since 1987, the S&P’s 18% the best since 1998 and the Nasdaq’s 29% rise it’s best since 1999.
If we look back in history at when these stellar quarterly returns happen, in every one of the ten best quarterly performances, the following quarter had also been positive, with average returns of 8%, so any reason why Q3 should be any different?
Sceptics and Bears will always point to the level of Quantitive Easing that has provided support for the market and the “Fed Game” of printing as much money as required does have some longer term unknown outcomes. But we know that this is their policy and therefore the buying opportunities that existed at the end of March were glaringly obvious.
The US elections, although not until Quarter 4 will always also impact on the performance of the market and with it’s twists and turns in the campaigns, create sell offs but I’d still favour the history of ten out of ten.
Looking at the price of a share / market can of course work, after all buy low and sell high is considered the name of the game, although when it comes to any investment decision, the price you pay should always be looked at only after understanding that you are buying good companies (or a fund that buys good companies)
I was on a webinar with legendary Fund Manager Terry Smith recently and he opens by speaking about a photograph he took on the back of an ice cream van that he was parked next to. It simply stated “It’s all about Quality”. How to find quality investments is not something which can be explained in a 3 minute read on a one pager monthly blog here, but reading books by greats such as Ben Graham, Peter Lynch and Phil Fisher do follow a similar path, with of course products and management being key factors.
It can be very difficult to stay true to this philosophy about buying the company based on its all round quality and ignoring the price. Whether it is share investments or everyday supermarket items, clothing , travel tickets, most people see price as a determining factor. Perhaps in all aspects of life where we are buying, but certainly in investing, price should always be seen as secondary to quality. If a share in one of these quality companies has increased in value it doesn’t mean its too late or you have “missed the boat”, as you are still buying a quality company.
The above scenario could be illustrated by the performance of Apple in the the last quarter. The share price has increased by 42% in just three months and now at an all time high. Many with the wrong perception will wait because there’s a fallacy that because the price has gone up, they will wait until it comes down a bit, in most cases like this you are in for the longest wait possible, i.e forever! To paraphrase the great Warren Buffet “Price is what you pay, value is what you get”
To really identify if a company you are buying is quality, the resources required to do so are of course extensive. Back in the 1950s, great investment managers like Phil Fisher would personally research companies with his rigorous selection methods. I am currently re-reading his classic book “Common Stocks and Uncommon Profits” on which before picking a company to buy he would look at around 200 options. These days, with a much wider global market, fund managers have teams of analysts who identify buys and sells for the manager. Like individual shares, some of these managers (like Terry Smith mentioned above) are quality, some are not. Our job is to make sure you get the former not the latter and generate good growth on your portfolio.