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Patient Investing is the Key

Fundamentally driven, long-term investors who believe in some element of value investing have no reason to pay attention to extreme global events

So last month, global markets were thrown into turmoil by this huge, earthshaking announcement by Janet Yellen, the Chairperson of the Federal Reserve, America's central bank. What was this change, you might ask? Well, the Fed removed the word 'patient' from its policy announcement. For a long time now, it has said (or implied) that it will be 'patient' in maintaining the near-zero interest rate regime that has now continued since the financial crisis of 2008.

Of course, given the habit of making obfuscatory statements that the central bankers of the world seem to love, she also said that just because the Fed had said that it might not be patient, it didn't mean that it was going to be impatient. Did you understand that? Well, professional traders, analysts and assorted talking heads around the world thought they did. In India, most analysts started the next day certain that markets would go up, except for those who thought that they would go down. In the end, markets first went up and then they went down, so on business channels, each group claimed that it was right.

Of course, you might equally say that they both were wrong. However, I think that the right conclusion would be that they were both irrelevant. Every day, global markets move in some direction or the other. And every day, there are people explaining that the cause was some news - big or small, macro or micro - which moved the market. It could be a central banker saying something, or it could be a geopolitical event like an election in the Middle East or some conflict on the peripheries of the new Russian empire, or it could be any of a thousand other reasons that professional explainers have learned to give out.

Still, we must not have grudges against the hard-working members of the market-explanation industry. It's a tough world and everyone needs to make money and put food on the table for the family. The more important thing is that investors - individual investors of the kind who read this magazine - must not make the mistake of thinking that this daily litany has any meaning for them. When Benjamin Netanyahu wins the Israeli elections and when Vladimir Putin claims that he would have used nuclear weapons in the Ukrainian civil war, then that may well have real repercussions down the line.

I'm not denying that these events are not without their long-term impact. Ten years from now, India's GDP growth would surely have been affected by something that has an impact on oil prices. However, the important thing is to realise that such events are not actionable as investment inputs today. If you are a fundamentally driven, long-term investor who believes in some element of value investing (as I hope all readers of this website do), then there is no reason for you to pay any attention to these externalities. You will make money based on choosing good companies that will sustain growth and buying them at reasonable value.

If the economy grows, then most businesses will grow and do well, and what the investor has to do is choose stocks that have some better-than-average characteristics. If you keep doing so without getting carried away too much, then there's a very high probability that you will make excellent long-term returns which are essentially unaffected by the steady flow of supposedly important events.

Forget what Janet Yellen said, or actually, even what Raghuram Rajan is saying. Instead, focus on buying stock in some good companies that are still available at reasonable prices.