When should I get into the market? The interest in short-term forecasts seems to rise exponentially as prices fall dramatically, says Marcus Hüttinger in a piece for finews.first.
This article has been published on finews.first, a forum for authors specializing in economic and financial topics.
Share markets recovered strongly over the summer on hopes that the US Federal Reserve was nearing the end of its monetary tightening cycle. But the continued high inflation rate for consumer goods and even higher price increases for industrial commodities have kept the central bankers firmly on a restrictive path.
Market optimism turned into disappointment – again. Key share indices reached new lows for the year. Given the high volatility and the significant price declines, many are now asking themselves whether the market has bottomed out or not. Not to mention when and whether they should get back in.
«We don’t have the faintest clue»
The interest in short-term forecasts seems to rise exponentially as prices fall dramatically. It is tempting to try to judge exactly when the low point mark has been reached and use it as an entry point for new investments. But my answer to that is much the same as that of the legendary investor Warren Buffett: «We don’t have the faintest clue».
In volatile markets, investors should focus on two things. Deep, fundamental analysis and the foresight to make considered, thoughtful anti-cyclical allocations of capital. Technical indicators, market sentiment, capital flows, hedging volumes, and short-term trading markers play little to no role in all of that.
«Nobody can seriously predict short-term market movements»
Investors should instead carefully pick out companies that generate long-term profit. They should have enough liquidity on hand to use them during large market dislocations.
Nobody can seriously predict short-term market movements. After all, even Buffet’s mentor Benjamin Graham once said: «In the short run, the market is a voting machine, but in the long run, it is a weighing machine.»
«Historically, the entry point has never been decisive when it comes to having the best returns»
The most decisive factor to successful investment is the long-term development of a business model. The ability to generate high levels of free cash flow and employ it over time is central. Margins and profitability are key, not perfect timing in the short term.
Historically, the entry point, even in times of crisis, has never been decisive when it comes to having the best returns. At least it hasn’t been for investors not wanting to speculate in the short-term - but invest for the long-term.
Marcus Hüttinger joined the investment management company Gané in January 2020 as a capital markets strategist and managing partner of its advisory function. He is also a member of the board and partner in the company’s investment entity, Gané Investment. Before he joined Gané, he was employed at Goldman Sachs and Morgan Stanley in several capital markets, investment, and asset management functions.
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