How does one cut through the economic, political, and market noise to arrive at intelligent decisions about how to allocate capital? We believe it comes down to price, research, discipline, and patience. One must take the time to assess underlying value and remain highly disciplined about how much should be paid for a particular investment. We must look for value and opportunities within a framework of big picture macro economic trends.
To begin, an investor must follow economic statistics such as non-farm payroll and employment figures, consumer confidence, the dollar, Federal Reserve policy, as well as consumer confidence. The statistics, and statistical trends (moving up or moving down over time), can give one a good framework from a macro economic perspective.
While in theory this makes sense, investing more aggressively when macro trends are positive and investing more conservatively when trends are negative, the current difficulty with this endeavor is that we have never before experienced our current economic situation. Statistics have been moving from positive to negative to neutral to really negative to fairly positive and back again. There are a lot a fits and starts in the data, but no clear trend. Even the Federal Reserve is having a difficult time interpreting the data as they continue to maintain a 0% target interest rate policy. Some economists even believe the rate could stay low for a few years.
With so much conflicting macroeconomic data, bulls and bears are both out in full force with their respective arguments. Both camps have good data points, reasonable arguments, and even some historical precedents that serve to support their thesis. The battle between the bulls and bears has added to volatility in the markets over the past year.
Given the uncertainty of the macro economic trends along with price volatility, investing in today's capital markets can by a trying proposition.
In trying times, investing is about patience, discipline, being price conscious, protecting capital, and more patience. We have to remember that opportunities are usually always present in the capital markets, if you look hard enough. We continue to seek out those opportunities while protecting capital, remaining disciplined, and staying patient.
Eventually the dust will settle, the clouds will blow through, and brighter days will appear - it's just going to take time.
