21 November 2012
No wonder the punters are confused. Yesterday The Australian’s Wealth section trumpeted that according to Morgan Stanley Investment Management’s Rick Ford: “Investors banking on the value of the Australian dollar coming down any time soon should tread with care.” Indeed, “The Aussie dollar could well be fairly valued,” he said, “given expected economic growth rates and relative interest rates.” Now 24 hours later, the Business section of the same paper proclaims that “Aussie to plunge, say strategists“. In this article, none other than (wait for it) Morgan Stanley’s currency strategists are forecasting the Australian dollar to fall by more than 10% in 2013, from US$1.0377 to US$0.90. Do the Morgan Stanley strategists ever talk to their funds managers, we wonder? (You can read both articles here).
The reality is, of course, that no-one knows what the markets will do in one week’s time, let alone one year’s. What is quite astonishing is that so-called experts with unknown track records, can blithely continue to predict what will happen next year with no qualification that, really, they are only guessing and their guess is no better or worse than the next person’s. And the media take it all on board as though these “experts” have a history of being correct.
The philosophy behind value investing, as promoted by Whites IFM, is that time spent in forecasting and predicting is time wasted. Much better to look at established historical data such as earnings growth, debt levels and working capital than trying to figure out what earnings might be for the next 3 years; let alone where interest rates and the Australian dollar might be. Value investing does not guarantee that all selected stocks will always go up or always outperform the average. What it does do is set up your portfolio such that, over time, you should fare better in terms of income and capital growth than you would with a portfolio selected using other methodologies. We believe in sticking to what is known rather than trying to second guess market movements.