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22 Feb 2012


Most investors will know that knotted feeling in the pit of their stomachs that happens every time there is a turn in market sentiment.  And perhaps, as happens to many, such a gut reaction immediately prompts another involuntary response – that of, “Quick, I need to get out or get in, buy or sell, change my portfolio, go into cash or bonds… DO SOMETHING!”

However – this is definitely not the way to go explains Mike Soekoe of Foord Asset Management, who says that investors must stay calm and stay invested for the long term.

Even in volatile and uncertain markets, Foord Asset Management consistently produces inflation beating returns over 10, 7, 5 and even 3 year time periods. According to Soekoe this is due to Foord’s tested investment philosophy of always taking a long-term view when investing in growth assets such as shares (or any asset class for that matter).

Soekoe offers the following advice to investors:

“Firstly, do not “time” the market. Markets do sometimes present opportunities for substantial gains from a short-term position, however, in general, betting on the short term is a speculative activity with inherently uncertain results.”

“In looking at listed companies, rather focus on earnings forecasts of at least three years ahead when deciding to buy or sell shares. Look at companies that consistently outperform the market due to their superior earnings growth over time - it is earnings that will determine the ultimate share price appreciation,” says Soekoe. “Thus by investing (at the right price and with a margin of safety) for the long term, one significantly reduces the risk of getting your “market timing” wrong.”

“Secondly, look beyond earnings to the quality of management. Foord spends a great deal of time evaluating company management and favours companies that have sterling track records and top quality managers who can manage specific business risks for our clients. Better management teams in listed companies are better able to manage a variety of future risks and they act as the first line of defence in troubled times.”

“Thirdly, it is important to recognise that in good times it is often the riskier companies that deliver the highest share price appreciation. However, in hard times it is these riskier companies that fall the most, often resulting in permanent loss of capital. For this reason one must avoid such companies altogether.”

(An analysis of Foords’ track record shows that they outperform the market 50% of the time in up markets. However, in volatile, down or sideways markets such as the one we are currently experiencing, Foord typically outperform the market more than 80% of the time!)

“Lastly, maintain an active mind set of “what could go wrong?” By constantly questioning your investment assumptions and views, one best ensures that you are prepared for virtually any eventuality,” advises Soekoe.

“By adopting these key approaches to your investment philosophy you can rest easier, regardless of what the news from the markets is tonight,” concludes Soekoe.


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