We have all heard the clichés in the investment world, “It is time to buy! It is time to sell! Never been a better time to…!” Follow the market long enough, and you are bound to hear them all. An experienced investor will know to be weary of those predicting the future. Is this the right time? Will it be different this time? Ask either question, and the answer could change on any given day. As investors, how do we make a sound decision with our capital?
The answer is simple. Know what you own, and why you own it. The same businesses that generated revenue and profits throughout 2021 are repeating that process here in 2022. Their outlook on the economy may shift due to a range of factors, but all the same, they predict profits in the years to come. This is not to say 2022 will be without challenges. Part of understanding the companies you own is understanding management’s philosophy and record during uncertain times. Strong management teams shine when conditions are less than ideal.
A glance at turmoil over the last two decades:
How did the companies you own fare during those turbulent times? If you owned companies with strong management and sound fundamentals, I would venture to say you did well. Very well in most cases, and even better if they paid you for the pleasure of investing. We call that a dividend. Companies with sound management typically have a history of paying their shareholders via dividends. When markets are volatile, you will inevitably realize the quality of the companies you own.
Is it different this time? I would not hazard a guess. I would recommend having a plan, reviewing that plan, and making sure it involves owning high quality businesses. They will fluctuate in value day to day. They always have. That is the nature of a market where shares change hands throughout the day. We do face uncertainties in the years to come. We always have. The consumer finds a way to obtain what they need. Great businesses find a way to provide what the consumer needs, at a reasonable profit.
Patrick E Gauthier | CFP®, MSAPM
Senior Portfolio Analyst