Opportunities even in a time of crisis
“The current stock market slump is creating exciting potential for investment in under-valued companies. This is the kind of opportunity that you perhaps only see once in a lifetime!”
Alexander Miller, Director - Ferd Invest, is definitely not among the ranks of those who are depressed by the current state of the stock market. Ferd is in sound financial condition, with little debt and good liquidity, which means that it is well positioned to take advantage of these opportunities. In addition, Andrew Miller can draw comfort from the performance of both the Swedish and Norwegian equity portfolios for which he is responsible.
“Of course, like other investors we have seen a fall in the value of our investments. But if we compare our performance with equity funds, we see that we have done better than all the Swedish equity funds, and in Norway we are among the 2-3 best performing funds”, he explains.
This performance means that Ferd Invest has comfortably achieved its target to generate a better return than the benchmark index for the Oslo Stock Exchange.
Relative return target
In other words, the business area’s investment mandate is defined in terms of relative return, and does require that the entire allocated capital is invested in the stock market at all times. This applies even if Ferd Invest expects that stock markets will fall, when it might be tempting to sell shares in order to invest the capital in some other way.
“We would only take money out of the stock market in this way if a decision had been made to reallocate capital to other business areas in Ferd that invest in different asset classes. This is a decision for the Executive Board”, explains Andrew Miller – who denies that he finds it stressful to be fully invested in the stock market at the time when virtually every share price is falling.
“After some years of experience in investment management, you become immune to seeing big movements in paper profits or losses. It is important to take a professional approach to this”, says Andrew Miller, although he does admit that his job is more enjoyable when markets are rising.
When the markets turn
And the markets will of course recover – Andrew Miller is quite certain of this. But only when the level of debt has subsided.
“Never before have private individuals, companies and in some cases countries carried such a high levels of borrowing. This has created historically high earnings and market capitalisation for banks and financial institutions. At the same time, they have taken on far too much risk, as well as getting involved in a lot of business that was not so well-advised. This meant that the bank and finance sector was the driving force behind the stock exchange bubble, just as the IT industry was the cause of the bubble that burst in 2000”, explains Alexander Miller.
Bottom of the trough – or further down to go?
Now the finance bubble has burst, and the banking sector’s golden era is over – for this time at least. The big question now is how long it will be before the damage this has caused to the real economy begins to heal, and the downward trends begin to reverse.
“It may well be the case that share prices continue to fall a little further. A number of countries now say that they have moved into recession, and it seems likely that many companies – and perhaps some national economies as well – will face new and unpleasant surprises as we move forward. This is likely to cause more shockwaves, with company failures and new falls in share prices as a result”, predicts Andrew Miller.
Even so, Andrew Miller does believe that the time is approaching when it will make sense to start investing again. It is always difficult to catch the bottom of the trough. The main point is that shares can now be bought cheaply, and offer enormous potential so long as one focuses on companies that have the strength to survive the current downturn.
“When pessimism is at its greatest, and when it is difficult to find any good reason at all to buy shares – this is the time when you can make some really exceptional purchases”, says Alexander Miller.