By John Drachman
But is popularity enough of a reason to buy?
Even the most astute institutional investor cannot predict which way the market is going. “Invest in companies that you both understand and believe will offer long-term value,” Berkshire Hathaway CEO Warren Buffett recently told CNBC. “No matter how much or how little you’re buying, you should be able to get your reasoning down on paper without relying on outside resources. Take a yellow pad and write down exactly why you plan to invest in a particular company.”
Investor’s Business Daily (IBD) tells its audience to “wade in when market conditions are right. You can run faster with the wind at your back than having it blow against you. So try to be aware of the market’s direction. It can be fickle like the weather. Don’t get off guard.”
The year 2020 was characterized by sudden surprises that bubbled up from the pandemic, turning many forecasts into vague guesstimates. When in doubt, stay aloof from market enthusiasms or current crazes. Meanwhile, look to interpret the meaning behind major trendlines ahead of your peers before adding or subtracting selections from your portfolio.
Keeping It Real
Reviewing the investment concerns of institutions is one good way to get a clearer grasp of the underlying forces that influence decision-making. To get a handle on industry trendlines before falling in love with a company, monitor the public information of corporate shareholders to deepen your understanding of the forces that drive change and profits.
According to Moira Conlon of the Investor Relations firm Financial Profiles, adherence to Environmental, Sustainability and Governance (ESG) standards may be one of corporate America’s most wide-ranging and influential themes this year. According to a recent BlackRock survey, institutional respondents said they plan to double their sustainable assets under management (AUM) — from 18% of AUM today to 37% by 2025. Mutual funds and Exchange-Traded Funds (ETFs) meanwhile directed $288 billion globally into sustainable assets in 2020, a 96% increase over 2019.
Instead of considering the many large companies that already have well-established ESG strategies in place; investors might take a look at those small- and mid-cap companies that are just now implementing their own ESG plans and could represent solid growth prospects at real near-term value.
The Bottom Line
ESG of course is only one investment theme. There are others; like identifying companies that are most likely to benefit from Washington’s stimulus package or COVID relief program. Before firming up your list of stock selections this summer consider reaching out to a licensed investment professional first to validate your assumptions – and help with the arithmetic.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.