Equities May Fall Below Fair Value, But Take a Long Term View

Purchases made in the midst of the market downturn may well result in short term capital losses. However, these short term losses access superior long term opportunities

Dan Kemp 25 August, 2015 | 11:18AM

The dramatic moves in asset prices that we have witnessed over the last few days can be very unsettling. But for the long term investor these price changes should be viewed as an opportunity to improve future investment returns by buying high quality assets at discounted prices. 

Warren Buffett famously said that investing is ‘simple but not easy’. One of the key difficulties the investor faces is the need to retain a long term outlook when others are panicking about momentary price changes. Another is the ability to differentiate market noise from fundamental changes in the return potential of an investment. At present, we believe that the sharp decline in recent days represents the former rather the latter.

The decline in prices has been attributed to many factors, most notably the bursting of the Chinese stock market bubble and concerns over the impact of this event on the global economy. While rapid sell off in China may have acted as a catalyst for the decline, is appears to us that the real reason for the decline was the lack of investors prepared to buy global equities at the previously inflated prices.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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