Monday, 22 March 2010

Strategic Thinking

Those who follow the situation on the stock exchange may have noticed that a lot of strategists are quoted on their vision. When there is trouble people recur to theirstrategic plans; why was it? What are we doing this for? and shouldn’t we change into another direction.
One of the strategist I heard about is Albert Edwards. He is predicting that the return on stocks will diminish. In fact this process is ongoing for some years and he reckons that we have only just started. Edwards is strategic adviser on asset allocation. According to his vision investors should bring down its stock allocation.
This is only one of the advisers. But it shows that investors and companies both need a strategy. Both need somehow the picture and idea of what the economic situation will be and how it will affect the portfolio (for the investor) or the resources and investments (for the company).
The parallel is stronger if you think that many companies do not bother about a strategy as long as the market conditions are fine. Now that the economic situation is changed thestrategic thinking (over the past years) can make the difference.
The problem for both is adaption to change. If the stock prices fall the strategic question is: is this the end of the bear-market or only the beginning. Asset allocation could make a difference. If it is the beginning and allocations to stock are lowered the strategy will make sense, but it could also turn out different and a lower asset allocation will mean a relatively under-performance.
Somewhere I found the remark: “my strategy is stock-picking. There are always stocks that show growth irrespectively of what the market does.” That is also a strategy; not a long-term plan, but an approach, like a way of life.
A similar approach (and parallel) for the company is to focus on a niche market. Like the stock-picker, there is always a niche that will perform independently of the overall market.

In both cases, the strategic benchmark must be set to this target. If you focus on stock-picking the market may offer worse but also better results.

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