Tony Morgan says changing our outlook as investors is required in bear markets, and patience for the right investing opportunities takes time and a new commitment to keen observation and research

With the financial constraints imposed upon us at the moment it may come as no surprise that the discipline of patience is a prerequisite to survive and ultimately come through this mess alive and kicking (I mean financially).

I bring this simple concept forward because it is aptly opposite to the frenetic Covid 19 years (2020 and 2021) whereby impatience was the thing, the winning philosophy otherwise you missed out. There was this eager anticipation that financial rewards where there to grasp if only you made the decision to lay down a wager and take a bet.  Relatively easy stuff.

The perils of misfortune, bad timing or plan old ignorance were not a discussion point. Hell, man, money was cheap and it was coming out our ears. Almost everyone had a dollar to throw around.

That’s all changed. You know it. I know it. This strange new world is stressful to say the least. The feasts are long gone. Seems like only famine is the future!

Stock and bond prices seem to be locked into deflation and we are only half way through 2022.  How long is this uncertain, high cost world going to bucket down upon us and cause misery?

Of course, so called balanced portfolios will be weathering the storm better than others, that are more, growth orientated with a consequential higher proportion in equities.  But we are all in the same sort of boat. We can all see some carnage, or carnage to possibly come. The rhetoric everywhere is somewhat pessimistic. The angst of pandemic lockdowns seem a ghost of never-never land. Damn, we have another obstacle to somehow overcome.

So, this is where I come back to the matter of time and the benefits and discipline of being patient.  When you slow down somewhat and take a more observant view of your financial investments and the sea we swim in, then maybe you can slowly realise that this more refrained investment strategy is helpful.

For example, now you have more time to examine opportunities, because obviously, we are in the doldrums.  How can any investment appreciate in the short term with interest rates continuing to rise? That race to invest is over. There is a less sense of urgency to toss the coin. And believe it or not, thank goodness.  We are moving to a saner investment environment, where care of one’s hard earned money is not taken for granted. Tough, but a step in the right direction. Getting us see reality more clearly.  We are now grafting and that’s fine, that’s the way of the Dragon. Rome wasn’t built in a day.

In this no quick fix world lasting the distance is imperative. Most of us do in fact need to hunker down, take a deep breath and examine more deeply, more thoroughly what that is going to take. Again, what matters most will take priority, should take priority. No willy/nilliness with the dollars unless you are absolutely loaded.

Taking a less frantic attitude to investments will help sharpen your observation skills. Time not only heals wounds, but gives depth for gathering better insight.  Your perception will change. You will take more care examining your existing investments rather than rushing to the next (FOMO) winner tomorrow. You will see more clearly what is going well, compared to the losers. You will have more questions and seek answers to problem-childs. Do not close your eyes, look directly at the mishaps, because here you will learn lessons.  Your faith will be stretched. Not a time to capitulate though, because we can all hear and feel the financial noise, the macroeconomic forces versus the stock specific realities.

Earnings season

In the short term, second quarter, US corporate earnings come thick and fast later in July and thus will give us all a sense of profitability direction. The US market continues to be the barometer for global equities along with the Federal Reserves every word. The Fed's work at containing inflation to about 2% is an enormous task, together with hopefully administering just enough dose not to kill the turkey!!  Our own Reserve Bank will endeavor to achieve the same trick.

From a local perspective, June balance date Company results will sing loud and clear late July and August. It is wise to take heed, to listen carefully, cause not all companies are the same and will navigate this economic storm independently. You can be sure though that what you are feeling financially as an individual, will be somewhat be reflected in company earnings announcements and forecasts.  Without doubt, doing business is costlier than a year ago.  How profitability is tracking will be more scrutinised than before, than say twelve months ago.

Expect companies that throw negative surprising announcements to be hammered.

Some recent catastrophes include Eroad (ERD, #50) and New Zealand King Salmon (NZK). At the other end of the spectrum we have had some comforting words from Fletcher Building (FBU, #9), acknowledging the difficulties that lay ahead, but also suggesting that it is not all bad news and that the company itself is well placed to weather the higher cost and building material shortage environment. In fact, they are forecasting solid operational figures.

Same goes with our biggest company Fonterra (FSF, #46), with high farmer payout forecasts for the 2023 July year end as well as potentially solid earnings growth per share (the range of forecast rather wide, but nevertheless positive).

Internationally you have important tech names such as Intel and Meta (formally Facebook) betting their existance and reputations on new frontiers. Both are spending multiple tens of billions to capture new markets and revenue streams. Such long-term investing, constraining medium term free cash flows is taking its toll as investors wonder if such mighty and extravagant endeavours are worth it.

So, you see investing in the ultra-big capitalised companies can be fraught with difficulties as well.

Just a reminder

Again, do not close your eyes.

Stay awake even though the pain is palatable.

Consequently, try to take more interest, a more concerted view to understand your investments a bit more (even the losers) and you will be surprised how this reflectiveness will ultimately help you become a more authentic, more understanding investor. An investor who sees a little better the wood from the trees.

That this investment business is not a short-term exercise is now plain to see. The kindergarten times of 2020 and 2021 are over. But now and into the next few years there will be plenty of time for concerted savings being ultimately more aligning with what has value. Lower share prices of good companies that show leadership and earnings resilience are the ones to add. No rush.

Tony Morgan has run a portfolio management business and an equity brokerage, both of which were purchased by Craig Investment Partners. He now runs a small family office that invests globally. Other articles in this series can be found here. And the profiles of all the NZX50 companies can be found here.