Blackstone Group is the world?s largest private-equity firm and its recent actions suggests that it thinks the current climate is a good time to invest. To that point, here?s what appeared in a recent Wall Street Journal article:
?The world?s largest private-equity firm $32 billion in 2015, up 21% over 2014. And a large portion of that spending growth happened in the fourth quarter, the firm said, as choppy markets dragged down prices and exposed investment opportunities that weren?t available when markets were booming??
?Blackstone executives characterized the recent market swings as driven…
Blackstone Group is the world’s largest private-equity firm and its recent actions suggests that it thinks the current climate is a good time to invest. To that point, here’s what appeared in a recent Wall Street Journal article:
“The world’s largest private-equity firm [referring to Blackstone Group] invested a record [US]$32 billion in 2015, up 21% over 2014. And a large portion of that spending growth happened in the fourth quarter, the firm said, as choppy markets dragged down prices and exposed investment opportunities that weren’t available when markets were booming……
…Blackstone executives characterized the recent market swings as driven by investor jitters over slowing global economic growth, rising interest rates and tumbling commodity prices.
However, they said they don’t expect to see a recession in the U.S. “I don’t think the world is ending,” said Mr. Schwarzman said Thursday. “I think we’re going through an adjustment and people like ourselves, who own long-term things and add enormous value, end up at the end of the day being mega winners.””
But, should individual investors – people like you and I – take Blackstone’s opinions above into consideration when we invest?
Personally, my answer is both ‘yes’ and ‘no.’ It may seem contradictory, but there’s a reason for that. So, stay with me.
Why it is a ‘yes’
I believe that institutional investors – of which the Blackstone Group is just one example – have access to reams of information (economic data, industry and company information etc.) that individual investors do not possess.
These information allow them to look at the overall investing environment from a holistic point of view and also enables them to make a better summary of what’s going on.
For example, if an institutional investor is interested to invest in the rig building industry because asset prices in that space have plummeted due to the collapse in the price of oil, the investor would probably get the opportunity to speak to industry experts and meet the management teams of industry leaders in that space – two Singapore-listed firms, namely, Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51) happen to be such companies – before it makes a decision.
Thus, for us individual investors, we might find some clues on the big boys’ views of the market by observing their actions and remarks.
Why it is a ‘no’
On the flip side, there are many reasons why we should not give too much weight to the things I had just described above. There are a few reasons why.
Firstly, I believe all investors – be they individual investors at one end or institutional investors at the other – ought to exercise independent thinking.
Following what others are doing would only lead to herd behaviour since you would have delegated your thinking to others. Without independent thought, it’s hard to develop a sense of how much value there is in an investment and this can lead to unproductive investing behaviour, such as panic-driven selling when prices fall temporarily.
Secondly, individual investors would have different circumstances (sometimes vastly different ones) from institutional investors. Not understanding that difference can lead to dangerous situations for the individual investor if he or she blindly follows the big boys.
A simple case would be a difference in investing time horizons; an individual investor may need to pay for a child’s university education in 10 years’ time with his or her investments whereas the institutional investor may have a time horizon of 20 or more years before the investments are needed.
The legendary investor Benjamin Graham once wrote the following:
“You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.”
Thus, before relying on institutional investors, an individual investor might want to ask him or herself whether the facts and reasoning of the big boys are right. If the answer’s yes, then he could consider acting on it. Otherwise, what institutional investors are doing should be ignored.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.