Caroline Ritchie: Investing always returns to market acumen and planning

Markets are a fragile and flighty beast at the moment, but with access to proven, reliable, fundamental research, investors can navigate and profit from variance. The absolute truism of investing is that nobody ever gets rich looking backwards. Consequently, the number one prerogative of anybody going anywhere near the capital markets is to look forward.
Forecasting economic conditions and the revenues of the prospective companies under consideration is a critical function of global commerce. Without forecasting, there is no investment planning, nor direction.
It is like trying to herd cats with a blindfold on in a thousand acre paddock. Further, with a passive focus on history rather than the future, you'd actually be relying on your investment cats to herd themselves each year. No thanks. Forecasting gives the investor two critical things: a set of reasonable parameters to work within, and when used in the context of company research, a subset of stocks from which the investor can choose their portfolio constituents.
Stocks in this subset, are, on paper, superior to other stocks in the preferred universe, because we have studied them diligently and eliminated the weaker and broken players. We can exclude companies with unstable balance sheets, poor sales outlooks, obsolete products, ineffective management and checkered pasts. And yet, there still persists a theory that lumping all these companies, good and bad, into a bag together and buying them passively will yield a higher and "safer" return than structured analysis and being moderately selective. It's an ongoing piece of politics in the theory of money. Call me fussy, but I prefer to eat the sugarcane rather than the weeds.
There is a place for index investing, but it doesn't involve superior returns. The index gives you the market return, always, now and forever, amen. An index silently tracks the overall market.
There is no prescience to be had. But when it comes to putting my money where my markets are, I'm sure going to employ a bit of acumen and brainpower into having an intelligent strategy. An active investor rides the horse by looking between its ears, whilst the truly passive investor will only ever see that patch of rump behind the saddle. Like any aspect of humanity, it takes all sorts. The long-term returns, though, speak for themselves and are well and truly proven in the active investment pudding.
Caroline Ritchie is an NZX Advisor for Forsyth Barr in Napier and holds an NZX Diploma, BCom and BSc. For sharemarket advice contact her on (06) 835 3111 or caroline.ritchie@forbar.co.nz.
The comments in this note are for general information purposes only. This article is not intended to constitute investment advice under the Securities Markets Act 1988. If you wish to receive specific investment advice, please contact your Investment Advisor. Disclosure Statements for Forsyth Barr and any of its Investment Advisors are available on request and free of charge.