It may sound cliché, but having foresight is definitely an asset when investing in the equity market.
Needless to say, the typical investor would look at the past performance as an indicator of future performance despite warnings being plastered on any material related to investment advice.
Some, on the other hand, go to the other extreme. They only buy shares when they have suffered a significant ‘misfortune’ and the price has corrected heavily. Whatever goes up must come down, so what goes down will eventually come up. No?
No!
It is not that simple, especially in today’s world where asset prices are more and more difficult to explain. Technological wizardry such as trading platforms, high frequency trading, algorithms, financial modeling and more, are just a few spanners in the metaphorical fundamental analyst’s wheel.
Add to this, abnormal monetary adjustments that continue to sustain an extraordinary investment situation, and the difficulty faced by anyone trying to provide an opinion comes into focus. No wonder more than a few choose the easy route and stick to what has performed well over the previous few months.
For the long-term investor – I am still in self-denial and believe/hope that most equity market investors are long-term investors – foresight may be a valuable tool. It may be difficult to master the concept, but the basic principle is easy enough.
A typical example would be that if you believe that alternative energy will gradually replace fossil fuels, do not invest in oil, and if an oil-related share experiences a heavy loss it is not an opportunity to buy, but only part of the transition process.
The home telephone is probably already on its death bed. The mobile phone is easily more convenient and necessary for communication. Microsoft has gone as far as to claim that even the mobile phone is dead and buried.
What they probably mean is that today’s cell phone as a personal communication device has already replaced the traditional mobile phone. Smartphones are mini computer devices that were only the objects of dreams a few years back. And what is making this all possible is the internet.
Who will be the next winners?
Probably companies like ASML which continue to provide tools that make smaller and faster technology possible. SAP which provides cloud processing solutions may be another option.
With this in mind we can have a look at the auto sector and the trend towards electrification and self-drive solutions. Self-driving technologies will cause the taxi industry to slowly die. In a few years, automated taxis will probably make the taxi driver obsolete. And the first automaker to provide a safe solution will be a big winner. Today, companies like Valeo which produces the technology that permits automation in cars are the best geared to gain from this trend.
Postal services are also going through a transformation. Any postal communication that requires a timely response is already completely online. Love letters have become emojis. Postal services have in practice been reduced to distributors of marketing and electoral material. The areas that are growing in this sector are those related to logistics and online shopping. Deutsche Post, owners of DHL, may be best positioned in Europe.
Therefore, while always keeping to the basic principles of investing, imagine the future and invest in those firms that will make it happen.
Disclaimer:
This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.