Ivy Foreign Equity manager comments – clear thinking if you ask me

Here is an excerpt from a recent written commentary provided by the managers of the Ivy Foreign Equity Fund.  I found it very insightful and worth sharing.

Investing can often be unnerving. When markets are expensive there is fear that the bubble will pop. Conversely, when markets are falling and thus leading to better valuations, the worry is that the market will continue to fall. In our view, successful investing requires a great deal of patience and discipline, high levels of conviction, as well as realistic expectations.

Patience and discipline are required in order to let the competitive advantages of a business play-out. Investors often deem a rising share price as evidence of a superior business and while this is generally true over the long-term, over shorter periods of time a company’s share price can be completely removed from its underlying economic fundamentals. Investors often flock to short-term price movements like moths to a flame assuming everyone else knows something they don’t. This behavior by others often creates opportunities to buy and sell at attractive prices.

Sticking to what makes sense from a longer-term perspective can often be a lonely place to be and requires a great deal of conviction. However, strong conviction is made easier when you have a very good understanding of the businesses you own and you are confident that over time these businesses will continue to generate wealth. You don’t know exactly when the share price will respond to these superior business models, but as long as the companies continue to improve on their economic fundamentals, then their share prices will eventually follow.

Realistic expectations are also key to successful investing as they help you make better assessments as to the true worth of a business. When stock markets rise, Wall Street will trot out all of the usual justification for why it’s warranted, and it often sounds compelling. However, it’s important to make your own mind up as to the underlying strength and sustainability of economic fundamentals and stress-test your portfolio for a wide range of outcomes. Not only does this lead to better balance within your portfolio, but emotionally it puts you in a better place for dealing with “the unexpected.”

To be sure, the Mackenzie Ivy Funds are not immune to severe market melt-downs, but historically we have protected capital better than most. We believe that by capturing enough of an up market, and less of a down market, our funds will enjoy better performance when measured through a full market cycle. Although we are in a world of bubbles, overly optimistic forecasts and high levels of debt we believe that by having a portfolio of attractively priced world-class businesses and by being realistic about the potential challenges facing the global economy we can help our clients achieve their longer-term investment goals.