Looking at a company’s performance may seem to many like an ideal method to evaluate whether or not to invest in a particular company. A company is doing well, so you invest in them. David Hay, of Evergreen Capital Management, thinks differently, however.
Mr. Hay supports a theory called “Right Cycle Investing”, a process that relies more on the inherent cyclical nature of the market:
“In the financial markets…[there is an] inherent cyclicality and reversion to the mean. If you rely exclusively on recent performance, it’s going to work for a while but when it’s wrong, it’s so wrong and you can end up giving all your profits back and then some, in a relatively short period of time.”
As you might imagine, this kind of approach requires a very personal approach to portfolio management- as following performance is so ingrained in our minds:
“You need to do some handholding basically to keep the clients with the strategy long term and of course, usually when it’s looking its worst is about when it’s ready to shift to a positive. A good example is in 2007 when large cap growth had just been lagging and lagging and a lot of people were giving up on the concept, but now it’s a leader…It is this re-education process away from the way that human beings are wired to behave that was great when it came to running away from a saber-toothed tiger but not very good in dealing with bull and bear markets.”
For the full interview with Mr. Hay, including a complete overview of “Right Cycle Investing” and stock picks, click here.
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