Constant Investor: Is short-termism destroying wealth?

That short-termism is growing only creates more opportunity for long-term

Long-term, patient, value investing is at the core of our investment philosophy at Avenir Capital. We make long-term investment decisions that take advantage of the opportunities offered by others reacting to short-term events. Investors often sell, at irrationally low prices, due to fear and panic or, simply, the unwillingness to be faced with a daily reminder of their most recent ‘mistake’ in the form of a stock quote.

Given the ever increasing algorithm driven trading strategies at play in the markets these days, initial investor buy actions are often magnified by computer programs that scour the market to pick up increased volumes or short term price moves and then put on automatic, high volume trades to take advantage of the directional move in a company’s stock price. This can just as quickly reverse, as we have seen recently in the rapid sell off of technology stocks like Facebook on the NASDAQ in the last week. A recent Bank of America Merrill Lynch report noted that jobs advertised for data scientists and quantitative analysts outnumber those for fundamental analysts by a factor of eight in the US and the number of fundamental analysts per US$1 billion of market capitalisation has shrunk from fourteen in 1986 to less than one analyst today. The fact that short-termism is growing only creates more opportunity for long-term, fundamentally oriented investors who have a good grasp on what a business is really worth to create, rather than destroy, wealth.

Value investing, the strategy of buying stocks at a significant discount to underlying intrinsic business value is, to our mind, the only truly risk averse strategy in a world in which we should all be risk averse.

Adrian Warner, Chief Investment Officer at Avenir Capital

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The Constant Investor: Is short-termism destroying wealth?