Australian Unity Investments head of portfolio management Edward Smith said the incessant “noise” coming from political and economic interests is threatening to overwhelm long-term investment logic.
The short-term political rhetoric of the election campaign is adding to the uncertainties that are being reflected in the market, said Mr Smith.
“Investors need to learn not to be distracted or influenced by the sort of short-term issues that politicians usually focus on, such as economic predictions for next year or the year after, or even short-term regional issues,” he said.
In fact, what pundits say is likely to happen in the next few years is often already priced into the market, said Mr Smith.
“The rule of thumb is that if a statement or policy seems certain, then it has already been taken into account in the price of an investment,” he said.
The insistence of market commentators to pick over the fine details of every word of those in influential positions also creates short-term distortions in markets, said Mr Smith.
“We have seen an example of this recently when more weight was given to a throw-away comment by the Governor of the Reserve Bank of Australia, on the setting of interest rates, than he intended,” he said.
Instead, investors should be looking at long-term trends such as “increasing investor optimism, a greater amount being paid for earnings, and diminishing tail risk”, he said.
“It all comes back to the basics of solid long-term investing – a portfolio that is diversified and has the flexibility to ride out short-term volatility,” said Mr Smith.
