Chief investment officer warns against traders affecting long-term decisions
The “issues of the day” attributed to the market volatility last week are all non-starters and not worthy of investor reaction, according to an industry insider.
US stocks repaired some of the damage on Friday but still suffered their worst weekly loss in six months. Wednesday and Thursday proved a sobering day for the major markets around the world, with the Canadian Press calling it a “dramatic end to three months of calm on the US market”.
Gerry Frigon, chief investment officer at Taylor Frigon Capital management, expects this wave of disruption to take a few weeks to fully blow over.
However, he dismissed many of the reasons for these “machinations”, such as the China trade wars, higher interest rates, slowing economy, inflation, a too hot economy, a flat or inverted yield curve, Italy, the Supreme court battle, the mid-term elections and the Federal Reserve's monetary policy.
He said: “We would react to NONE of these issues, even the ones that directly contradict each other.”
He added: “Frankly, while it is never fun to watch your portfolios drop in value, we have always said that it is a healthy by-product of a functioning market that these abrupt, and sometimes violent, price movements happen.
“We have experienced significant appreciation in the value of our growth portfolios over the last several years and sometimes the ‘payback’ for that is what we are experiencing in the last few days.”
Frigon said rather than focus on the headline stories, this is the time to look towards one his company’s mentors, Richard Taylor, when navigating ugly markets. His favourite line was: “Are you going to let 1% of the shareholders of your businesses drive your decisions about what represents the true value of those businesses?"
Frigon said: “In other words, since on any given day the trading volume in stocks represents roughly 1% of the total shares outstanding – of course, give or take - we don't want to let the trading tendencies of ‘traders’ dictate our long-term investment decisions.
“We could comment on each one of the reasons for consternation in the markets today and refute them, or maybe even agree that there is reason for some level of concern regarding some – for instance, China trade wars.
“But we would reiterate that none of the ‘issues of the day’ are cause for us to change our overall views regarding narratives that are driving long-term value creation in our companies.
“If one is laser-focused on the businesses of the companies they own, much more so than the daily fluctuations of the stock price of those companies, we believe value will ultimately be sorted out reasonably. And in a properly diversified portfolio, it will more often than not be sorted out favourably, over time, for the true investor.”