Investment timeframes: Why are they so important?
As investment managers, whether it’s buying a listed company, a bond or a commercial property, our aim is to buy the asset at a low price and sell it at a higher price. To consistently achieve this requires a well-researched fundamental view on the value of the asset today and into the future.
What constitutes fair, reasonable or poor value paid comes down to the ability of the fund manager to accurately assess the future economic potential of an investment. Different investors will often have entirely different views on what constitutes fair value based on their own assessment of future economic potential.
Take a company such as CSL which has achieved shareholder returns of 1098% over the past 10 years and 5678% over the past 20 years1. But what about the next 10 or next 20 years? Will there be a change in management, or what about competitors taking market share or a change in government policy? A myriad of factors can have an influence on a company’s future economic potential and share price.
Given the future is often impacted by a range of factors both within and outside of a company’s control that are often difficult to predict, an investment thesis can change and/or take time to play out. At Atrium our Australian equities investment thesis are based on a three to five year time horizon, allowing management the time to create, and the market time to acknowledge value. The timing of both is uncertain, but as long as the thesis is right, then value should be created.
There can be periods of time when markets are unfavourable to certain businesses or the sector is unloved for whatever reason. Take the technology (internet stock) boom in the late 90’s or the boom in resource businesses in the early to mid-2000’s – 2010. For those who remember those times, there was a view that these booms were the new normal. As we now know too well, this was not the case.