Investing money is a highly complex process and like many things the devil is always in the detail if you want it done successfully. Everyone has heard stories of people making “big money” investing in the current hottest tip, whether it be crypto, real estate or something else that you didn’t invest in. If it makes you feel better, we probably didn’t invest in it either.
At Astier, our underlying investment process is fundamental to how we manage our clients’ assets. Having a clearly defined and repeatable process is one thing, however ensuring that you have the fortitude and persistence to stick to it through various market cycles and negative investment climates is a completely different kettle of fish.
Over the years we have accumulated some key anecdotes that ring true no matter where we are in the investment market cycle and wherever you are in your own investment journey. A handful of these are shared below.
1. Cut out the noise: Investment markets are noisier than ever with news available 24 hours a day, and social media platforms allowing everyone to voice their opinion as if they were “an expert”. We have been around long enough to get an idea when something is too good to be true or potentially hazardous to your wealth.
2. Have a basis for your decisions: Do not make any investment decision based on emotion but remain level headed and calm and make an informed decision whenever you invest a portion of your net wealth.
3. Quality: Defined “the totality of features and characteristics of a product or service that bear on its ability to satisfy one’s given needs”. We believe it is imperative that both your adviser and your investments have this key characteristic.
4. Volatility: The industry likes to focus on the share price volatility or “risk” of a company. We prefer to focus on the earnings volatility of a company, as this is often a key determinant of the quality of the investment and hence the future price of that company.
5. Prospects: A company must have good prospects. Quality is determined by the past actions of the company management and its earnings record. But we must not be anchored by the past but instead look to the future prospects of the company to provide future earnings.
6. Cash flow is King: Companies that have no cash flow relative to earnings are best avoided. Cash flow higher than earnings increases the quality of the business and helps to generate sustainable earnings and consistent dividend income.
7. Absolute returns must be considered: Dividends are historically what clients have come to rely on, however it is only part of the total return picture. Capital growth and its volatility must be considered, particularly in pension phase and in a low interest rate environment.
8. Avoid high debt companies: Without debt, a company will find it hard to become insolvent. Often there have been quotes of “lazy balance sheets”, but we tend to prefer lazy balance sheets as it reduces the underlying financial risk of the company.
9. Avoid the short term trends: We haven’t come up with a snappy marketing name for this, but in our experience we have noticed that approximately every 6 months a “new” investment trend appears. Often it is an old trend that has been dressed up with new terms, for a new generation to jump into. Things like the Nifty Fifty on the 60s, Crypto, Tech, Tech Boom, Lithium, Uranium, Buy Now-Pay Later and many other trends have not provided long term prospects or consistency that our underlying quality mandate requires. Often, it’s the things we recommend avoiding that help your investment outcome.
This list in not comprehensive essay on how we assess investment opportunities, however it is an example of how we start to look at a top-down viewpoint and then look to filter various investments for our client portfolios.
If you are busy doing your own job, living your own lives and don’t have the time, education or experience to manage your own investments, please contact Astier to see how we can assist you on your investment journey.