By Axel Steinmetz
I was listening to an investor from Vontobel Asset Management answer the question of if his firm was still buying despite generally higher valuations. There’s always talk on the street about how stocks are going to crash, and there’s even been talk among respectable institutions warning investors that the bull market is ending. Here’s one of my favorite examples from an ad I saw recently:
Beyond street gossip, the fundamental concept of value investing is to buy undervalued stocks that the market hasn’t price currently for whatever reason. Sometimes such stocks are ignored or wrote off as poor investments despite untapped earning potential, or sometimes Wall Street focuses on the wrong thing.
When everything is expensive, it’s harder to find underpriced companies as easily as during a recession when everything looks cheap. Additionally, with the constant fear of an impending recession, there’s a question of why we are buying the first place.
Just to be clear: yes, stocks look expensive today, but VVI is buying anyway. Trying to time the market is a fool’s errand, and as an undergraduate club, we don’t have all that much time to wait around for a recession to make valuations cheaper.
Even if we were convinced a recession was coming, which we could never know for sure anyway, VVI would probably still be buying. I only got two years of college left, and the other founding members only have 3. A recession could slow the economy for longer, and sure it would be a great time to buy, but we don’t have time for that.
Just to reiterate again though, VVI certainly can’t predict when the next recession will come, and I personally highly doubt anyone who says they can.
In the invent of a recession, VVI will be buying. We are choosing to keep 10% cash in the beginning, and while that may decrease slightly, we’ll probably keep around 6% in cash minimum. That’s something that most funds do so that they have the capital to buy when they need to, and to mitigate some of the risks of having money in the market to begin with, instead of spendable cash today.