- Obsession with short-term earnings targets can sometimes punish quality shares
- Long-term investors need to learn to filter media noise
- Other companies this week are Morrisons, Forterra, Spirax-Sarco and Domino's Pizza
Shares in London Stock Exchange Group (LSEG) sold off last week because analysts did not like the guidance on how much money the company was going to spend and invest in integrating Refinitiv – a global financial data and workstation business – into the group.
For me, this is missing the point. The Refinitiv deal is transformational and very positive for the London Stock Exchange. It moves the business towards highly profitable data and analytics revenues, which are backed by subscriptions, and diversifies it from volatile and less predictable stock exchange-related business. The deal stacks up both strategically and financially in terms of the returns it can provide for shareholders.
Warehouse retail business Costco (NASDAQ:COST) also fell victim to the cult of the “number” last week. Second-quarter sales were better than expected, but earnings per share (EPS) was lower than expected due to the payment of higher pandemic-related wages.
This may depress profits and analysts’ forecasts for a while, but I prefer to look at it as a shrewd investment in its key assets – its employees. Far too many employers are short-sighted and just treat their workers as a number in a spreadsheet that is to be minimised at all costs. It is refreshing to see a company that invests in the morale of its workforce and gets more out of them as a result, and Costco has not been afraid to pay higher wages for many years now, while growing its revenues and profits.
Block out noise and focus on quality for the long-term
More isn’t necessarily better when it comes to investment decisions. You do not need to be jumping around making decisions if you’re in it for the long haul. Those investing towards a far-off horizon are best off not obsessing about interest rates and the economy, spending endless time on social media or constantly checking the value of their portfolio.
My preferred approach to investing is to seek out - and not pay too much for - quality businesses that have strong competitive positions and will keep generating profits and cash flows, and continue growing.Download PDF