January 2024

Three key traits of successful investors

Valuation, embracing volatility and patience. This is the essence of long-term wealth creation and not understanding this can be the reason many investors destroy capital and miss opportunities.

Consider valuation. Successful investors seek undervalued companies that can achieve higher valuations over time. They know that when it comes to investing, nothing matters more than the price paid for an asset.

Owning undervalued companies is the key to amplifying long-term portfolio returns. It’s also the best way to reduce risk. In PM Capital’s experience, significantly undervalued companies have less downside risk.

To find these undervalued companies, great investors hunt for valuation anomalies. They scour the world for companies that are badly mispriced by markets. They buy stocks trading on bottom-quartile valuations and look to sell them at top-quartile valuations.

Embracing market volatility is the second plank of wealth creation. Experienced investors watch and wait for value. They pounce on an opportunity when a share price falls too far below a company’s true value. 

Often, this opportunity occurs during high market volatility. When markets are gripped with fear, good stocks can be sold with the bad. The best investors capitalise on this -irrationality rather than retreat to the sidelines. They know which stocks are undervalued and buy more of them when bargains emerge.

Patience is the third part of successful investing. That is, a willingness to hold quality companies through industry cycles that can last 7-10 years. It takes time for a company’s full value to be realised and there are usually bumps along the way. No stock delivers attractive returns in a straight line.

But patience is a rare commodity in today’s market. Too many investors seek quick gains. They invest in the latest trend or hot sector, pinning their hopes on market momentum rather than company valuations. When stocks rise, they sell too early and miss bigger gains.

If you want to build long-term wealth, consider using active managers who consistently identify undervalued companies; who buy more of these stocks when volatility fuels opportunity; and who have a genuine long-term approach. 

Managers who have the perspective that real wealth creation demands. PM Capital’s perspective has been built on valuing companies for 25 years, and successfully investing through periods of immense market volatility.  
 

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This insight is issued by PM Capital Limited ABN 69 083 644 731 AFSL 230222 as responsible entity for the PM Capital Global Companies Fund (ARSN 092 434 618), the PM Capital Australian Companies Fund (ARSN 092 434 467) and the Enhanced Yield Fund (ARSN 099 581 558), the "Funds". It contains summary information only to provide an insight into how we make our investment decisions. This information does not constitute advice or a recommendation, and is subject to change without notice. It does not take into account the objectives, financial situation or needs of any investor which should be considered before investing. Investors should consider the Target Market Determinations and the current Product Disclosure Statement (which are available from us), and obtain their own financial advice, prior to making an investment. The PDS explains how the Funds' Net Asset Value are calculated. Past performance is not a reliable guide to future performance and the capital and income of any investment may go down as well as up.