Monday, 15 October 2007

Ignore the noise

A great piece of commentary from Roger Montgomery CEO of Clime Capital Limited (CAM) on ignoring market noise and taking advantage of market overreactions. Roger Montgomery's insightful commentaries can be read every month with the release of CAM's Monthly Net Tangible Asset report.


With the Federal election having just been announced, Clime is perfectly positioned to ignore it completely.

The front page of one financial paper today commented;

“Investors are preparing for six weeks of sharemarket uncertainty.”

Leaving aside the question of how one might ‘prepare’, what piques my curiosity is just how the author would describe the other 46 weeks.

Uncertainty is a constant. So familiar financial market commentary such as ‘the market faces increasing uncertainty’ or ‘uncertainty returned to the market today’ is just plain silly.

We would never have the opportunity to buy great businesses cheap if the world was certain. And given the prices at which you are able to acquire most listed businesses today are once again anything but cheap, I would argue the market seems to be very certain about the outlook for most companies. Evidently, the market overreacted when it fell to its lows on August the sixteenth.

I prefer it when the market overreacts. We can take advantage of silliness.