Our still, small voice of calm
Our still, small voice of calm
Another day, another set of alarming headlines. Currently, every corner of the globe seems to be embroiled in turmoil. Maybe it’s the effect of 24-hour news channels on an infinite number of stations, but there is so much news – or, as we like to call it, ‘geopolitical noise.’ And the current levels of noise are almost deafening.
President Trump’s trade war with China, which has been waged ever since he came to office, continues unabated. Both countries have imposed punitive tariffs and import restrictions on one another’s products, and the US has accused China of stealing intellectual property and manipulating its currency unfairly. So there is no sign of a détente in this situation. And while these superpowers argue, there can be no doubt that global manufacturing and trade are being affected.
Meanwhile, in Hong Kong, the ongoing protests by pro-democracy campaigners have caused markets to tumble throughout the wider Asia region. Closer to home, the uncertainty of the UK’s position within the EU shows no signs of nearing a resolution. Then there are fierce tensions caused by separatists in Spain who want independence for Catalonia. Meanwhile, the political hotspots that have brewed for decades – the Middle East and Russia – continue to cause concern.
There are certainly indications that the global economy is showing signs of a slowdown. Important purchasing manufacturers’ indices numbers are falling, with the German PMI standing at its lowest level in September since 2009.
In response to the global economic cooldown, central banks have once again increased monetary stimulus, with rate cuts in the US and further quantitative easing in Europe. There is plenty of loose money flowing, and developed economies have low rates of inflation. So, despite the widespread anxiety, equity markets have risen over the year. But would it take much to turn this ‘wall of worry’ into a ‘wall of fear’?
The consequences of these long-running loose monetary policies need to be considered. In a world where $1.7trn (yes, trillion) of debt is generating negative interest rates, it is certainly possible to misallocate capital. Low borrowing costs and plentiful liquidity are allowing businesses that can refinance their debts at lower levels to survive, when perhaps a harsher level of interest would not.
The asset-price inflation, fuelled by quantitative easing, has had political consequences. Politicians are having to appease an angry section of the population who can no longer buy homes, whose wages have not increased and whose net wealth is static, while asset holders are watching their wealth soar.
As asset managers, just like the still, small voice of calm that ‘speaks through the earthquake, wind and fire’, it’s our duty to tune out the noise and turn objectively and unemotionally to the business of investing. We aim always to assess the fundamentals and make sure they are right for our investments, ignoring all the ‘fear and worry’ that is driving the moment-by-moment noise on markets.
We think it’s important to bear in mind Warren Buffett’s wise words:
“In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."
Our aim is not to predict how global events will turn out, but to build well-diversified, robust, actively managed portfolios based on companies with balance-sheet strength that offer compounding profits and dividends – regardless of whatever else is going on in the world.
Our regular contact with company management teams allows us to build on our understanding of individual company fundamentals. Plus we can develop the strategic thinking that is reflected in our portfolio construction and stock-picking.
Our active stock-picking approach lets us engage with companies and help to improve their environmental, social and governance (ESG) standards, and to encourage the best corporate practices. No one, not least millennials or Generation X-ers, will thank us for investing with computer algorithms that have absolutely no regard for the welfare of employees or the environment.
So, we continue to tune out the geopolitical noise and focus on the important fundamentals of our investments. And by continuing to hone our strategic thinking, we aim to add real value to our decision-making processes.
China-US trade war timeline: https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-us-china-trade-war-idUSKBN1WP23B
Gen X and ESG: https://www.wsj.com/articles/what-generation-is-leading-the-way-in-esg-investing-youll-be-surprised-11568167440
Buffett quote: https://www.fool.com/investing/best-warren-buffett-quotes.aspx
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