If there is a recession, how must I change my stock investing strategy?
Ben Bernanke: January 17, 2008. The then Federal Reserve Chairman told lawmakers that even though the U.S. economy is facing a difficult combination of circumstances, the Fed is not forecasting a recession and the U.S. economy remains extraordinarily resilient. Well, we know how that panned out.
Howard Marks: On CNBC in 2019, when asked if the U.S. is heading towards a recession. We’re always heading to a recession. The question is this year, next year, or five years from now.
James Montier in “7 sins of fund management”: Using forecasts as an integral part of the investment process is like tying one hand behind your back before you start. An enormous amount of evidence and anecdotal experience suggests that investors are generally hopeless at it. The core root of this inability seems to lie in the fact that we all seem to be over-optimistic and over-confident.
Why do we persist in using forecasts in the investment process? Because humans do not do well with uncertainty and cling to anything as support.
This is important:
- There are only two types of forecasts: Lucky and Wrong. Stop relying on forecasts to guide you.
- Be an investor, not a forecaster. As an investor, you cannot place forecasting at the heart of the investment process.
- Analyse rather than try to guess the unknowable. Look for sound businesses, stable cash flows and good management. Comprehend whether a true margin of safety exists between the fundamental fair value and the current price. When you have done all that, thoughtfully allocate money towards long-term opportunities.
- Stick to your investment strategy. Focus on the long-term fundamental drivers of returns. The process will deliver, not the predictions.
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Articles authored by LARISSA FERNAND