Time for a timeout!
Robert Schiller, the Nobel Prize Winning Economist has written that "Bubbles are typically fueled by an underlying story that is so captivating that it can override any evidence that contradicts it."
Well, call these wide-eyed, tech inspired new value investors captivated in the extreme.
The last 18 months have clearly taught us that value is not just a question of investing in a company with great prospects - no matter how disruptive and exciting they are.
Objective reality does indeed exist. Capital is not free. A business must be valued with reference to reality - not just in the eye of the beholder - as if it’s a piece of modern art.
And most importantly: The price you pay really does matter. It has to make sense relative to what the business is today, not what it might be in a fantastic future.
So what should one do next?
First , we need to reclaim the term “value investing”. It can’t mean whatever the latest flavour of the month investor wants it to mean, so that they can also claim it’s distinguished mantle, and put themselves in the tradition of Ben Graham, Warren Buffett, Charlie Munger and others.
It only represents the approach of a sober, virtuous few.
Because we should be clear to an unsuspecting public as to what is and what it is not.
But perhaps you are a member of that group who have been caught out. Perhaps you bought into a fund that claimed to be value, but which instead chased companies with no earnings, high valuations and projected but unrealized spectacular futures whose dreams have now been shattered by raised interest rates and changed expectations. It may have left your portfolio is under water.
My suggestion is to forgive yourself. What happened is part of the eternal cycle of markets.
You and your fund managers were drawn in. It’s not ideal. But it is what happens. The key now is not to double down on the mistakes. Learn the lessons. The worst would be to suffer a loss and not learn the lessons. That would be a double mistake. Similarly, be careful before selling in disgust. That might just compound the loss.
Your fund manager, with hindsight, overpaid for their investments, but just because they might be under water right now does not mean that all is lost.
Many are likely to be good businesses for which your fund manager just paid a little too much. Many of them will climb back.
As ever – and this counts for most style of investing: Staying put is usually the best policy. Reduce turnover to lower trading and other fees. Hold on. Look to the long term. The less you think about and interfere with your portfolio, the better you will do.
