As equity investors, we are bombarded with information every day – and most of it is irrelevant market noise, writes Terra Capital’s Matthew Langsford.
This is the idea that there is a constant stream of information coming in from the media, our colleagues and the internet that can influence our perception of the equity market and impact our investment decisions.
The issue is that investors can be misled by all this noise, resulting in poor, reactionary investment decisions.
Daily predictions for market movements are based on the overnight behaviour of international markets, but these markets don’t always end up reflecting the Australian market and rarely do they correlate with individual small cap stock performance over time.
Market commentators then add fuel to the fire by inspiring fear or optimism, which can corrupt investor sentiment one way or the other. My advice is simple: block out the noise.
It is important to stick to your long-term, basic investment disciplines and not focus on macroeconomic factors.
Financial countdowns and deadlines, disruption, fluctuating interest rates and the wild actions of Donald Trump can all impact your perception and confidence in the stock market but, in the long-term, events like these have little effect on a portfolio and an investor is most often better off doing nothing.
As an example, at the more speculative end of what we do at Terra Capital, our position in Oklo Resources (ASX:OKU), a gold exploration company located in Mali, Africa, is beginning to take shape.
The stock has seen strong share price growth from a low base, since the start of 2015 and has jumped from 20 cents to 30 cents in the last month alone.
Commodities and gold have been performing well in 2017, but the price of gold isn’t the key driver of the company's success.
For a long time Oklo’s projects have been viewed as highly prospective, however the granting of a nearby tenement and recent drilling results have confirmed that view.
Drilling at the company’s Seko project appears to have attracted the interest of established gold miner Resolute Mining Limited (ASX:RSG), who has accumulated just over 5 per cent of Oklo, and Chalice Gold Mines (ASX:CHN), who have acquired nearly 10 per cent of the company’s stock.
These investments by companies with strong African experience is a validation of Oklo, which was the reason we decided to invest rather than the hype surrounding gold or commodities.
Looking to market commentary is not necessarily going to provide the intelligent investment insights that lead to good stock picks. That said, there is some value in listening to the right people.
If you’re reading current market events and opinions through blogs, magazines and online financial news then take what you read with a grain of salt and use positive news as inspiration to get stuck in to the details that truly drive a company or industry.
For instance, many companies are waiting on legislation to be passed before they can expand into new countries and regions.
We also have a small position in Creso Pharma (ASX:CPH), a company that develops, registers and commercialises pharmaceutical-grade cannabis based products and who operates internationally.
The Turnbull government passed legislation to legalise medicinal cannabis during February and, combined with announcements regarding commercialisation, the company has performed well during the month.
Despite the opportunity, we were still strict with our analysis of Creso Pharma and didn't pay too much attention to the legislative hype.
We identified that marijuana stocks, especially those who propose Australian expansion (as opposed to US or Canadian), should be treated with caution given the remaining regulatory hurdles that need to be overcome before sales can begin in most jurisdictions.
Focusing on company factors and riding though the macro noise is essential for an investor in a volatile market. For better investment results, focus on the fundamentals, stay the course and ignore the noise.
In our view, investing is all about the basics: applying basic investment principles.
Matthew Langsford is a portfolio manager and analyst at Terra Capital.
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