Bill Ackman: Short Term Prediction – GuruFocus.com
The economic and stock market outlook has deteriorated in recent months. Indeed, high inflation and rising interest rates that are expected to rise further are likely to make operating conditions more difficult for many industries. Due to this and heightened geopolitical risks in Europe, the equity market outlook is also very challenging.
However, just because the economic and stock market outlook is gloomy doesn’t necessarily mean more trouble is ahead for investors. Economic growth and stock market performance could be much better, or much worse, than current forecasts. Ultimately, only time will tell as it is impossible to accurately estimate how the endless number of variables that affect the stock market will interact with each other.
Focus on the right areas
Therefore, I firmly believe that there is little to be gained from trying to predict the short-term economic and stock market outlook. For the most part, it’s random and investors who spend time trying to predict it are unlikely to be consistently right.
Instead, I think it makes a lot more sense to focus on identifying strong companies that have long-term growth potential. They are likely to survive a period of deteriorating economic performance, if any, and capitalize on long-term growth opportunities. Additionally, buying such companies when they are trading low offers a greater opportunity for long-term capital gains.
Such a sentiment is often shared by value investors. For example, the founder of Pershing Square
Bill Acman (Trades, Portfolio) said: “Short-term economic and market forecasts are largely a wild ride, we invest in a strategy that makes the need to rely on the short-term market or economic assessments largely out of context.”
A structured approach
In my opinion, using a structured approach to identify high quality stocks that are trading at low prices is a great strategy. For example, investors can perform a series of “checks” to ensure that any company they buy offers financial strength, a wide economic moat, a solid long-term growth strategy, and good value for money based on historical levels and peer group analysis.
Once these companies are identified and purchased, an investor can sit back and let the economy and the stock market do the heavy lifting. Indeed, the economy could be in a recession today, but has an excellent track record of providing dynamic conditions conducive to earnings growth for a wide range of industries.
Given that the stock market has produced an annualized total return in excess of 10% over the past 30 years, buying and owning high-quality companies and letting capitalization work its magic is a sound overall strategy. Focusing on putting it into practice, instead of indulging in frivolous short-term economic forecasts, is a very sensible decision.