NZ Companies Warned Against Kneejerk Investing
Wellington’s business leaders were warned against kneejerk investing last night in a speech delivered to the Wellington Chamber Of Commerce by Paul Dyer, head of investment strategy for AMP Henderson Global Investors.
“History has shown that investors often experience boomer returns in the years following a global crisis,” said Mr Dyer.
Quoting figures from the US stock market, Mr Dyer said that on average equity markets had risen 25.8% in the first year after the last 10 political and military crises, and 37.5% over the two year period. Examples included the Cuban Missile Crisis, the two oil shocks and the Gulf War.
“Political and security crises are times when hearts rule over sense. Panicking investors take a short-term view, reasoned analysis goes out the window and they rush to sell stocks. We’ve seen this over the last year with many companies selling down after years of strong returns.”
“This is precisely the worst time to sell and the best time to buy, and it can cost businesses dearly. Our research has shown that if an individual or a company invested in this kneejerk manner over the last 10 years it would have reduced their total returns by perhaps one quarter to one half.”
Mr Dyer used the example of the recent terrorist events in the United States as an example of hearts ruling over sense.
“In the first week of trading after the tragedy, markets fell by 12% as frightened investors cashed up in droves. It has since risen 18%. In NZ dollar terms world share prices are now about 7% higher than they were before the attack. Clearly investors who panicked at the time did themselves a dis-service.”
AMP Henderson Global Investors is New Zealand’s largest investment management company, managing over $10 billion.