The last month has proven to be a difficult month for many professional investors and one which has reminded market participants that a buy and hold strategy, so much loved by investors in the 80’s and 90’s, no longer applies (for now, until sustainable self supporting growth resumes).
May was a good example of this, as it was not only about company fundamentals but also about Politics, Regulation, Macro Economics, Investor behaviour and being nimble.
Concerns regarding the Eurozone crisis became heightened, as Greek elections proved a non-event and voters must return to the polls in June. Worries over a slowdown in the Chinese economy resurfaced and the announcement that the Government would not implement another infrastructure stimulus packaged weighed on Resource companies. The economic data out of the US overall came in below expectations and pressured the US market down. This in turn weighed on consumer sentiment and spending in the US.
In this environment the best investment process does not rely on selecting companies based on company fundamentals in isolation but also considers the Political, Economic and Regulatory environment these companies operate in. It is also crucial to look at the balance of risks for an investment and look at behavioural factors which may influence share price movements.
A wide investment process also ensures an active and nimble approach in uncertain and volatile markets and avoids many of the blow ups caused by Political, Economic or Regulatory risk.