Increased noise endangers logic: AUI

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The amount of confusing ‘noise’ in the investment world is making it increasingly difficult for investors to focus on priorities and reach sensible investment decisions, says Edward Smith, head of portfolio management at Australian Unity Investments (AUI).

Edward Smith

“The noise coming from commentators, market experts, fiduciary and monetary chiefs, and governments is incessant in today’s online, ‘always on’ world, and is continuing to increase as more and more political and economic interests insist their voices are heard.

“As a result, investors need to take care that investment logic doesn’t get overwhelmed in the din.

“For example, a lot of the political and policy background advice and commentary is about short-term issues and activities, such as the coming Federal election.

“Politicians tend to dominate the press in the lead-up to an election, and their comments can add to uncertainties reflected in the market.

“But it doesn’t pay to get too excited about election rhetoric and promises; they rank among the least reliable in terms of providing insights into the future,” Mr Smith said.

“Unfortunately, such commentary can get in the way of investors making sensible decisions about their long-term needs.

“When there’s a lot of clamour and distraction, it can be hard to maintain concentration and remain focused.

“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.

“What pundits believe could happen in the next few years is typically already priced in financial markets.  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.”

Mr Smith said another problem with all the commentary at the moment is that the bones of every announcement made by people in influential positions are picked over in fine detail by commentators looking for hidden meanings and unintended indicators.

“Their comments are critically evaluated by markets, which assign a probability to each of a number of scenarios based on all public information.

“These are often then interpreted in ways that affect markets – usually for a short time before a sensible correction takes place.

“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.

“It should also be remembered that even the very best economic forecasters are not always on the money.

“Long-term investors need to ignore such actions and reactions, and shouldn’t feel any pressure to make quick market judgements themselves.

“They should be looking at long-term trends, which at AUI we believe includes increasing investor optimism; a greater amount being paid for earnings; and diminishing tail risk.

“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,” Mr Smith said.

Australian Unity Investments is the funds management arm of Australian Unity, a national healthcare, financial services and retirement living mutual organisation. 

Australian Unity Investments offers a range of investment funds in domestic and international equities, fixed interest, and property.  Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with boutique asset managers.


For more information please contact:

Edward Smith – Phone: 03 8682 4419

26 August 2013