Hang in there, advisor!
If your clients’ investments are working out, or if they aren’t but you are convinced the investments are well run, stick with them.
Advisors shouldn’t be spooked just because China is having problems, volatility is once again upsetting many investors and some industry observers predict another crash.
That was the advice of a noted hedge fund manager at a recent conference in Manhattan.
Problems will always be in the market, but fundamental investing is good in any market, he said.
“What do we do? We simply hang on,” Larry Robbins, founder and portfolio manager of Glenview Capital Management, said at the 21st Sohn Investment Conference at Lincoln Center.
Robbins said fundamental investing is alive and well, and it would be unfiar to dismiss the style.
“If you’re going to criticize fundamental investing, you can’t then criticize it for short-term performance,” Robbins said.
His comments could have been interpreted as striking a discordant note. A number of speakers predicted bad times ahead, with one speaker, Stanley Druckenmiller, the chairman and CEO of the Duquesne Family Office, predicting another crash. Another participant warned that Saudi Arabia is on the verge of collapse.
However, Robbins argued that a good company could overcome short-term problems.
“If you own something in which the fundamentals have been good and the stock prices have been bad, just hang on,” he said.
So why do many investors sell companies that have good long-term earnings prospects?
They keep thinking that there is some magic formula that justifies dumping stocks that are still very good companies, he said.
Robbins urged “investors to hold on tight” to companies that have good fundamentals, but whose stock prices are not good.
He cited Flextronics as an example of a company in which the short-term prospects seem rocky, but which over the long term is set up to win.
“They have just exited some low-volume businesses, which depressed earnings,” Robbins noted, adding that the changes will make the company stronger over the long-term. The short-term movement of the stock is spooking investors, but its long term fundamentals are good, Robbins said.
Robbins contended that fundamental investing trumps business cycles and that the best companies will provide long-term growth even if the economy tanks.
“Why is the price down? We don’t know,” Robbins said. But, he said, the lesson is clear: Hang onto companies with good fundamentals.
