Invesco Canada blog

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Jeff Hyrich | April 21, 2017

Why I don’t make macro calls

We’re frequently asked for our thoughts on the market or for an outlook. I can make some general statements, but do not make investments based on macro calls and I feel it’s potentially dangerous to apply any broad market statements to everything out there.

How many times have you seen “pundits” in the media making bold claims that we’re about to have a market correction and that investors should switch from equities to cash? Or buy more equities instead because of some statistic on gross domestic product? Or get into long bonds because of a tick in interest rates? It’s all kind of confusing. The truth is nobody knows what’s going to happen to the stock market. Most of these so-called “experts” don’t manage money, but that doesn’t stop them from still making forecasts and guessing – and guessing is all it is. Eventually they might get one call right, like the blind squirrel that every so often finds a nut.

There are thousands of companies – some are prospering and some are struggling, some are undervalued and some are overvalued. Broadly speaking, stocks are not cheap right now, but that doesn’t mean that they cannot go higher. Valuations have risen, in part due to low interest rates globally and a lot of money “sloshing” around looking for a return. Fixed-income returns are low and have been for a while, but it doesn’t mean they can’t stay low or go lower. The consensus of many investors is that interest rates will gradually rise over the next couple of years. We agree.

While stock prices are high, we believe that if you work hard and know what you’re doing, you’ll be able to find opportunities over time. It’s surprising that a year ago the Trimark Global Endeavour Fund’s cash level was almost 20% and, even though the markets have continued to rise, we bought six new ideas last year and started buying a seventh one in early in 2017 – an unusually high level of activity for us. We think that these are attractive ideas in that the companies’ stock prices had come off from their highs at the time we purchased them. The Fund’s current cash level is approximately 5%.

Nothing is easy in life; there are no “pots of gold” at the end of rainbows. You cannot have gain without the chance of loss. Our investing discipline sounds simple, but it requires discipline, patience, creativity and lots of hard work. We have a demonstrated track record in terms of returns and risk that spans 15 years, and we believe that our long-term success is not due to chance, but rather to investing in a business-like fashion, ignoring the noise and keeping our emotions out of the decision-making process.

Equity markets rebounded in 2016 after the election of Donald Trump as U.S. President. This was based on assumptions that his new administration would be more “business friendly,” as seen in his campaign proposals to reduce corporate tax rates, reduce regulation (and bureaucracy) and increase infrastructure spending. Offsetting these pledges are concerns that Donald Trump is unpredictable and could create conflict between countries in the form of trade wars with his “America first” foreign policy.

Time will tell, but we think the U.S. is a great country and will remain a great country. As patient investors focused on the long term, we think President Trump could create a lot of volatility going forward, given his personality and unpredictable nature, and we think that could create opportunities for us to do what we’ve always done – buy high-quality companies at low valuations.

We look forward to continuing to grow your hard-earned savings in the future.

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3 responses to “Why I don’t make macro calls

  1. Another great article Jeff, much appreciated. You have an amazing ability to simplify your approach to buying businesses. Unfortunately your articles will never make the headlines since you’re not scaring anyone to death! lol

  2. Thanks Jeff. So true, yet our clients want to follow media advice. The media with no risk in managing money.

    I will paraphrase what you said in your blog for my “market savvy” clients.

    Thanks for sharing.

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