Adrian Day: The One Thing Central Banks Are Good At

Adrian Day of Adrian Day Asset Management wants investors to truly understand the companies they are adding to their portfolios, rather than hedging their bets through diversification.

Speaking to the Investing News Network at this year’s New Orleans Investment Conference earlier this month, the seasoned fund manager urged investors to do their due diligence.

Referencing a quote from Warren Buffett, Day explained, “Diversification is all too often an excuse for ignorance. In other words, you really don’t know the companies you buy very well, so let’s just diversify a bit in case I’m wrong.”

“Diversification is important, but much more important than diversification is actually knowing and understanding the companies you do invest in,” he added.

While many speakers at the annual investment gathering warned of a looming financial crisis, Day is less certain that economic instability is imminent.

He did, however, mention rising debt levels and over-optimistic jobs data out of the US as possible tipping points for a financial downturn.

“I don’t think (a financial crisis) is imminent, but definitely the economy is deteriorating, and when you have a situation where the economy is deteriorating (then) something out of the blue — or not out of the blue — can spark that fall off a cliff,” said Day.

He also cited exorbitant personal and household debt levels as a potential catalyst, noting that some consumers are acquiring automobile loans that are longer than the life of the vehicle.

As consumers look to the central banks for debt relief in the form of interest rate cuts, Day commented on the impact easy money can have on economies that are stretched to their limits.

“Central banks by their nature are good at doing one thing — well, two parts of the same thing,” he said. “Lowering interest rates and increasing the money supply. They are good at easy money.”

While easy money may remedy some immediate issues, it often prolongs the inevitable, adding opaqueness to troubled waters.

Listen to the interview above for more from Day on interest rates and the labor market. You can also click here for our full New Orleans Investment Conference playlist on YouTube.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.