Investor’s Diary for Quarter Ending September 30, 2015

October 5, 2015

Long time has passed since we have seen such a bad quarter in the stock markets. The Dow, which represents the very largest US companies was down 7 per cent for the quarter ending September 30, 2015, whilst the S&P 500 was down 6.4 per cent and the Nasdaq, heavily influenced by information technology and biotech companies, was down 7.1 per cent — despite a US economy that is clearly in recovery mode.

Overseas markets performed worse. China’s Shanghai Composite was down 29.7 per cent whilst Brazil’s Bovespa was down 33.4 per cent during the quarter, both in US dollar terms. Risk was definitely off. The US markets were the best performing markets for US dollar investors over the most recent quarter despite being negative.

The volatility has been extraordinary over the last two weeks with strong gains one day, several marginal days, thereafter followed by one big daily drop. These are rollercoaster markets driven by fear with little attention to fundamentals. Smart investors take advantage of these sell-offs and add to their equities positions but most are frozen by fear. One has to ignore these short-term moves and focus on the long-term benefit of participating in the ownership of some really great companies.

I believe that the malaise in stock markets is caused by a lack of political leadership in the US. Not much can be accomplished by President Obama as his administration advances through its final months. The leadership of the Republican Party is in question with Majority Leader Boehner announcing just over a week ago that he will not only step down from his position in the House but leave Congress entirely at the end of October.

At the same time you have more than a dozen candidates for the Republican nomination for the Presidency with a front-runner who appears to have a narcissistic personality disorder and little substance to his platform.

The leading Democratic contender for the US Presidency is viewed as having questionable integrity and the second candidate for the Democratic nomination is a left-leaning socialist. Neither is good for business confidence.

Globally President Putin of Russia is injecting himself into the Middle East where the withdrawal of American forces has created a political vacuum. An evil Islamic fundamentalist scourge has taken root forcing millions of people to flee to Europe. Children are washing up on Turkish beaches dead.

I do not think it surprising that the stock markets reflect the rocky global political landscape. The only antidote for this malaise is for the investor to buy companies that will do well despite the political environment — disrupters that are changing the way we live. Add to this some reliable dividend payers, quality companies that cushion portfolios when stock markets fall.

• Robert Pires is chief executive officer of Bermuda Investment Advisory Services (BIAS).