“I remain amazed by the number of commentators, analysts, fund managers and investors who seem to be obsessed with trying to predict global events on which to base their investment decisions,” fund manager Terry Smith tells The Daily Telegraph.
This is a waste of time, as it is unlikely to result in better investment returns. “To usefully employ your predictions you would not only have to be mostly correct, but you would also need to gauge what the markets expected to occur in order to predict how they would react.”
In his annual letter to his investors for 2017, Smith took a swipe at rivals who had warned of a stockmarket bubble, noted Citywire earlier this year – especially a bubble in the type of stocks he holds. Critics had been predicting for the past five years that these firms would soon start to underpeform. “During that time the [Fundsmith Equity Fund] has risen in value by over 175%,” Smith wrote. “So far, they have only managed to demonstrate the difficulty in making predictions and implementing actions based upon them.”
Investors should focus on things they can control – for example, “whether we own good companies and what price we pay to own their shares”. Smith favours healthcare, consumer staples and technology. He recently bought shares in Facebook at near all-time highs, but isn’t worried he’s missed the boat, says The Daily Telegraph. Facebook’s share price may be high, “but its cash flows and earnings have grown faster than the share price, which may make it cheap”.