In general, it is not the best policy to predict where markets are headed. It is more pertinent an i...
In general, it is not the best policy to predict where markets are headed. It is more pertinent an investor focuses on company fundamentals rather than trying to generate good returns by successfully calling what the price of oil will be in three months time, where interest rates are headed or whether Chinese economic growth will be sustained.
While these factors are used to gauge how markets will be affected, the success for an investor is not predicated on forecasting, which is not a repeatable skill. What is repeatable is the selection of good stocks.
By avoiding much of the market noise and concentrating on specific drivers of companies, investors should be able to add value through stock picking while avoiding the temptation to speculate too heavily on the direction of the market. People often look for outlooks at the beginning of a year when asset allocation decisions are being made, however it is important to keep commentary general.
For example, the past two years have been strong for European equity markets and therefore another year of comfortable 20% plus gains, is not expected.
While strong earnings growth has accompanied share price appreciation across the board, much of it stems from successful restructuring following the heady expansion-mania years of the late 1990s. Therefore, the market is not as cheap as people believe.
There are concerns about structural issues facing industries in the region and many remain cautious.
Investors would be wise to focus on companies whose earnings are driven by long-term structural growth patterns and to avoid cyclical stories or companies that are seeing revenue growth purely because of short-term factors such as a weak dollar or a strong copper price.
This kind of approach should reward investors with upside should markets continue to rise, but, most importantly, protect capital should they turn southwards.
So what kind of structural growth patterns are being followed? An example is Europe's growing and ageing population. Many of Europe's developed economies are faced with the prospect of looking after a population that is living longer.
While this will place a strain on some countries' public finances, many companies in the healthcare sector are likely to benefit.
Getinge is an example of this.It is a Swedish market leader in a number of niche areas such as patient handling and sterilisation equipment for use in hospitals.
Getinge is exposed to solid structural growth (the increasing need to care for the elderly) that will not be affected by factors such as movements in oil prices or interest rates. It is a solid business with high margins and stable earnings growth.
Continental Europe is a great place for a stockpicker - there are so many niche business areas and the variety of companies is great. There will always be strong investment opportunities, irrespective of the direction of the broader indices or the macroeconomic picture.
Investors should look at company fundamentals
Europe is a stockpicker's paradise
Demographic trends favour healthcare-type companies
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Retirement Planner Forum 2019