So is it different this time?
The current market environment is extraordinary with record low interest rates in Australia, and around the world. In IML’s view this is pushing investors into financial assets and up the risk curve creating a momentum-type stockmarket with sectors showing plenty of froth and bubble.
While every cycle has different drivers overall there are always many similarities. Corrections in the sharemarket are a self-cleansing mechanism which occur to rid the markets of speculative excesses built up as markets rise to new highs. One can never accurately predict the timing of such corrections although many similar symptoms often exist before a correction occurs - such as high stock valuations, increased speculative activity in poor quality companies and general investor apathy.
However cautious investors like IML can still find opportunities which represent both quality and value.
It’s important for investors to hold good quality stocks in their portfolio and to understand where the company is aiming to be in the next 3 to 5 years. Being invested in good quality stocks means a long-term investor is unlikely to panic during a correction and can ride out the storm.
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Anton Tagliaferro is one of Australia’s most highly respected value-style fund managers. Anton founded Investors Mutual Limited (IML) in 1998 with the purpose of creating a research-driven fund manager focused on building portfolios of companies...