After listening to parts of Chancellor George Osborne’s budget speech, you might forgive me for feeling the urge to sell all my shares and plough the proceeds into baked beans and shotguns!
Gloomy outlook
The Chancellor warned that “financial markets are turbulent. Productivity growth across the West is too low. And the outlook for the global economy is weak. It makes for a dangerous cocktail of risks.”
He went on to say that the Office for Budget Responsibility (OBR), which reports on the sustainability of public finances, revised down growth estimates in the world economy and in world trade. In their words, he said, the outlook is “materially weaker.”
The OBR, George Osborne reckons, points to the turbulence in financial markets, slower growth in emerging economies like China, and weak growth across the developed world. Around the globe, the OBR notes that monetary policy – instead of normalising this year as expected – has been further loosened.
To further scare me, George Osborne said: “We’ve seen the Bank of Japan join Sweden, Denmark, Switzerland and the European Central Bank with unprecedented negative interest rates, which reflects concerns across the West about low productivity growth.”
Quoting others, George Osborne has it that the Secretary-General of the Organisation for Economic Co-operation and Development (OECD) said that: “Productivity growth… has been decelerating in a vast majority of countries.” The International monetary Fund (IMF) warned that the global economy is “at a delicate juncture” and faces a growing “risk of economic derailment.”
Seriously, should I panic-sell and hole up in a bunker until the storm has blown over? Of course not and here’s why.
Holding on tight
Famous successful investors don’t run for the hills every time the world economy wobbles. Warren Buffett, for example, is well known for ignoring macroeconomic forecasts and concentrating instead on finding wonderful businesses at reasonable valuations. Once he finds one, he rarely lets it go.
Another US investing legend Peter Lynch once said that the key to making money in stocks is not to get scared out of them, or words to that effect. The trouble with acting on economic forecasts in the world of investing is that they can be wrong, part wrong, transient, or right-but-so-what. So, rather than worrying about economic predictions or what world economies are doing, I’m going to follow the investment greats and focus on the intrinsic value and prospects of the individual companies I hold or want to buy.
It can be psychologically tough to hold a portfolio when share prices are dancing around like fleas in a jar, but the key is to extend the investment time horizon to at least five years or more. Over that kind of time frame, recessions and downturns come and go anyway.
Rather than dumping my carefully chosen shares and the slices of great businesses they represent, I’m looking for economic doom and gloom to provide decent opportunities to buy more of a good thing at good-value prices.