I like to point out people whose investment wisdom I admire and who I have learned from.
One of the best thinkers I have found recently is the guys at Smead Capital Management. I have been reading their letters and blog posts for a while and I like the perspective they bring to markets.
The recent article they posted “Recession Fear Investing” is in that category.
A few snippets from the blog post:
A recession is two consecutive quarters of economic contraction. Historically, highly inverted yield curves like we have now are predictive of recessions. The 10 Year Treasury Bond interest rate has dropped from 4.3% at the peak to 3.5% currently, even as the Federal Reserve Board reinforces the idea that short rates will be taken above 5%. This has created very high short rates relative to longer-term rates reinforcing the recession predictions.
This raises two questions. First, has it paid historically to try to predict six-month stock market returns? In other words, can you benefit from fearing a recession? Second, are there simpler things for concerned investors to focus on to give them the ability to use the kind of five-year time frame that we prefer at Smead Capital Management?
To the first question, we always answer that it is fairly useless to try to predict the unpredictable. Nobody can predict short-term stock market returns (even though people never stop trying or reading the opinions of people who are paid to predict them). The other part of predicting a recession and altering your investments based on the prediction always leads us to ask folks this question.
I thought this was an excellent point. It is impossible to predict the future and so what if you could? I guess the idea that many people have is that if a recession could be forecasted then one could ostensibly buy stocks at a cheaper price.
From an investing point of view, it is probably better to just find quality companies selling at a reasonable price and begin averaging into them. A long holding period (3-5 years or more) will likely result in a great business compounding capital over time. Isn’t this the essence of investing?
Consider subscribing to Smead Capital’s blog posts.