But if I am a long-term investor or a value investor, should I even care?
I do not track the movement of bond yields. I don’t even understand how they work, nor do I care. This has actually worked for me. It is rightly said that too much analysis leads to paralysis. If you try to peel onions in the market, you would be left with nothing. Factors deciding the market direction keep on changing from time to time. Yesterday, it was about interest rates and bond yields, today it is about Covid 2.0, and tomorrow it will be about something else.
These issues matter to those who have a short-term vision of the market. If you are investing for the next 6-9 months, for example, then you need all the stars to be aligned during that period to make money.
In my case, the view begins from 4-5 years, and in between, bond yields will fall down and rise up 20 times. If a long-term investor focuses on these things, then you are bound to lose your path. You will not be able to make money.
As far as the Fed’s move is concerned, it is beyond doubt that it would affect liquidity in the market. But I do not even bother about that. Let’s consider that the Fed is going to hike interest rates. What will happen? FII money will flow out. The kind of shares I buy do not have much of FII holding. I have seen interest rates go up or down 3-4 times in a year. But look at how the index has gone up in the last few years! FII movement impacts traders, not investors.
Any long-term investor who has a horizon of 5-10 years should not be bothered about any of these factors like bond yields, inflation, interest rates, Fed’s policy, etc.
I have seen bull run in the stock market when inflation was at 10-12% and a bear phase when inflation was at 2-3%. Today, if you are thinking that a rise in inflation will spook investors out of the market, history shows the opposite has also happened in the past.
I don’t think any long-term or value investor would even look at these things. Your entire focus and concentration should be on news related to the business you are invested in. Track the company and the sector in which the company is operating in. If an increase of drop in interest rates by 25-50 basis points, none of the companies I am invested in will get impacted as they have zero or very little debt on their books.
In the next few weeks, the discussion will move towards the impact of monsoon and then there will be some other topic for us to feed on. Some traders need pain to survive, but investment is a blessed business. We often abuse it by placing so many parameters. We end up looking for reasons to be unhappy. The whole purpose of choosing to invest as a career is to let the management be constantly worried about the company and let yourself sip wine. But the opposite happens.
