Investors should remind themselves from time to time that they should invest for the long term and ignore some of the daily news that are unlikely to have long-term consequences.
In the past two weeks, all eyes were on Cyprus to see how would its financial crisis play out. However, as Larry Fink, CEO of Blackrock, stated last week, Cyprus is a US$10 billion dollar problem and is unlikely to be a major economic issue. The sum Cyprus was seeking is trivial compared to the US$85 billion printed every month by the US Government for its asset purchase program.
I attended a presentation by Bill Ackman, portfolio manager of hedge fund Pershing Square. He is a fundamental, research-intensive value investor who seeks to realize value from investments through an activist approach. His short-selling against Herbalife led to a live debate on CNBC with Carl Icahn, a supporter of Herbalife. He is not particularly concerned about the short-term prices of securities. Rather, he looks at the long term viability and profitability of the company when he decides to make the investment. This strategy paid off as the hedge fund he manages beat the market consistently, including a decline of only 13% in 2008.
Sometimes financial journals magnify every piece of news because that is how they draw readership. However, ask yourself what are the long-term consequences of the news before getting bogged down in every bits of details.
