Maintaining discipline

The non-stop appearance of new crises over the last 15 years has been akin to doing battle with the mythical Hydra! Investment Director, Paul Tyndall discusses the importance of staying true to an investment process during tough market conditions.

by Paul Tyndall

Investment Director


In chronological order we’ve had the Great Financial Crisis (2007/8), the European Sovereign Debt Crisis (2011), Brexit (2016), Pandemic 2020 ongoing, soaring inflation 2022 and currently the Ukraine war. All of these have had a profound geopolitical impact and across many domestic spheres the howls of the left behind have been evident at the ballot box and polarisation to the left and right.

In many cases each new crisis has compounded the negative impact of the previous crisis.  It’s analogous to say the errant pedestrian keeps getting hit by another bus before convalescence is complete!

This is all rather exhausting.  With perfect foresight the stock market would have been avoided at all costs.  Indeed a British investor, investing myopically in the FTSE 100, would have had almost no capital return on their investments over these 15 years.

However, an active investor, searching globally, has generally had a bonanza over this timescale.  There are plenty of companies and industries that have thrived against this difficult backdrop; the key is knowing what to buy and then being very patient.  Buy great companies with competent management in bits of the economy that are likely to keep growing in most conditions - companies with high barriers to entry (monopolies) who spend lots on research and provide products and services that are easy to understand.  Simple but not easy.

There are many more rules and principles to successful investing but what makes it all very difficult, for both the advisor and the advised, is emotion.  The terrible TV images and doom- laden news reports have a tendency to shorten our time horizon, reduce our risk tolerance and encourage overreaction to the new event instead of continuing the rewarding toil of patiently allocating capital to great companies.

Inflation might peak this summer, the war might end, but maybe not. I believe process and discipline will ensure the prospect of medium and long term wealth creation. After all, 2020 and the onset of the pandemic caused the worst economic setback in a century and yet it was a rewarding year to be an investor.

The great investor Benjamin Graham said: ‘In the short run, the market is a voting machine but in the long run, it is a weighing machine.’ Most of the companies I look to invest in are continuing to grow revenues and profits substantially, which bodes well for when conditions revert to company fundamentals instead of panic and fear.

Paul Tyndall, Investment Director


The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.

 

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