Market volatility - what does it mean for investors?
Market volatility has exploded during the past two weeks, following a long period of relatively benign market conditions.
The single overriding reason for this volatility is directly related to concerns around inflation returning, prompting monetary tightening sooner than most expected.
We think it is likely central bank policy will be bias towards tightening, to stave off excess inflation.
Market volatility could be quite a feature for some months as further evidence (or not) emerges of the need for higher interest rates. Functioning markets require a degree of volatility to act as a disciplining force and big market swings can be indiscriminate, which means there will be long term buying opportunities.
Companies with strong balance sheets and some degree of pricing power should be able to withstand some inflation and higher interest rates. Companies with high levels of debt will find it harder to service those debt levels when interest rates start to move upwards.
By sticking to some basic investment principles the volatility should not necessarily be something to fear. However, when the market goes through its big swing downward, investors need to be prepared to act.
Our investment style:
James Sharp operates a predominantly 'value' based approach to investments. We do not follow the latest trend or fad but prefer to follow an approach that is consistently successful over the longterm. We are happy to concede that patience is a key element to this approach. Our investment strategies are based on in-depth analytical research of UK companies. Investment opportunities are thoroughly investigated by building up a sound knowledge of businesses, competitors and sectors. We actively meet with companies at Annual General Meetings and undertake field visits to develop a qualitative understanding of a company while assessing external research.
We base our stock recommendations on companies that can demonstrate a number of the following characteristics:
- Organic growth rather than acquisition led growth
- Stability through one or more business cycles
- Consistent trend of generating cash rather than just profit
- Clear commitment and track record of paying dividends
- Strong management team who have their own monetary investments within the company
- Market value supported by tangible assets, such as property backing or cash in the