A hung parliament — what does that mean for value investors ?
In a word: nothing.
Here on The Value Perspective, we understand that politics can be an important consideration for many investors and today’s ‘unexpected’ result may cause concern for some. As value investors, however, any short term events – be they political or economic – will have little effect on our portfolio decisions.
Of course we are mindful of the possible impact — we don’t live in a bubble. The stock market will inevitably react, moving share prices up and down depending on their estimates of the winners and losers from the situation. However, the true fair value of businesses changes very slowly over time. It is therefore incumbent upon us to do what we always do on the value team. To take advantage of emotional swings of the market that are not justified by the swings in the true value of companies – to be buying when others are scared, and to be selling when others are greedy.
Also remember macro-economic forecasting is very difficult, and even if you get it right the market can move in the opposite direction to what you believe is appropriate. Last year’s Brexit and the US election results foxed the pollsters. But even if you had known the result of the EU referendum and the US election in advance and with absolute certainty, what good would it have done you as an investor?
It was widely believed that both eventualities would be bad news for equities. However, the market took just a couple of weeks to bounce back from its post-referendum losses, and not even a day to account for Trump’s impending residency in the White House before resuming its march towards all-time highs.
Today, we will act as we always do: going wherever the value is in the market. Investors who have followed this strategy have been compensated for short-term discomfort through considerable long term excess returns.
We will remain committed to our investment approach backed up by more than 100 years of history: An unemotional, valuation-based approach to investing should deliver over the long run.
Regardless of the final outcome of last night’s vote for the government, the only thing that matters over the long-run is valuation. This is buying businesses that trade at a significant discount to their intrinsic value.
The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans and Simon Adler, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.