News and Even More News
The economic news cycle is relentless as news about the domestic and world economy regularly makes the daily headlines. The current talk is about mortgage applications at 22-year lows, Q1 earnings season, inflation, rising interest rates, spiking oil prices and the war between Russian and Ukrainian forces. Although these items are making the news, how important are they to investors? For most investors it is meaningless unless you can accurately predict how these news events will affect overall market or individual stock prices which is not possible to do with any consistency.
Investors with the appropriate strategies in place can however take advantage of the market chaos caused when markets and individual stocks overreact to world news, whether positive or negative. Currently, there are numerous opportunities for the savvy investor as oversold growth stocks and stocks in general are available at bargain prices. In an attempt to avoid exposure to growth stocks in a rising interest rate environment, fund managers began aggressively selling but not because growth stocks were no longer fundamentally sound but because they feared how rising interest rates would impact their current valuations. In a rising rate environment, growth stocks tend to slide in value.
Unfortunately, there is high degree of certainty that an investment manager’s ability to correctly value any asset in the face of rising interest rates will not be accurate. This is true primarily because there is no way to accurately predict future interest rates or associated future cash flows that have to be discounted to determine a stock’s current value. As investors overreact to these short-term news headlines, savvy investors with the right strategy jump in and purchase what some managers or investors are selling out of fear, uncertainty, and doubt. It is the classic example of “throwing the baby out with the bath water” mentality.
Of course, there will not be opportunities in all stocks that are declining in value but rather those that have the best combination of quality, value, and financial strength. It is clear from our research that an investor holding a select group of stocks with fundamental characteristics that are indicative of future outperformance versus the overall market will consistently do well in all market cycles. For specifics, see our article titled “THE ULTIMATE LONG-ONLY HEDGE FUND STRATEGY.” Overreaction to market news in the short-term creates opportunities for investors over the long-term. By minimizing the number of stocks that are held in your portfolio and identifying the optimal holding period you can take advantage of these market overreactions to news events that cause short-term volatility in the markets.
The fundamentals are key to a successful experience in the financial markets. We would suggest that if you have the time to research strategies that work for you, do so soon as opportunities are waiting. However, if you want to get started with a proven approach, join “The Collective.”
