Value Investing’s letter to Santa
Record high dispersion across stocks offers opportunities
In our final thoughts of the year I wanted to reflect on the conundrum that continues to bifurcate markets and one that we have discussed at various points; namely the huge dispersion between stocks with low valuations and those with record high valuations (the Cliff Asness blog was one of the clearest on this issue). As a firm our philosophy is to try and find opportunities below or above intrinsic value, based on bottom up fundamental research — this is ingrained in our DNA. We are not chasing momentum or looking for that short term upgrade or downgrade.
With this in mind, enjoy this wide ranging (and very long!) chat between Tobias Carlisle (of Greenbackd and the Acquirers’ Multiple fame) and Bill Brewster. There is so much discussed in this — value investing, back testing, Twitter, how to value companies — it is packed with tonnes of insight. I particularly liked Tobias’ admission that he had become a bit myopic just looking for undervalued earnings per share growth and needed to think more about how growth opportunities can be undervalued. At heart though his assured approach to picking companies that can reinvest and give him a return regardless of whether the stock market was shut for 5 years made a lot of sense.
On the discussion around valuations and process he was equally clear and projected a rosy outlook for the future of deep value equities. While there has been a notable reversion of some of the value vs growth indices since the vaccine rally, in reality this barely touches the sides. In fact if you look at the dispersion of valuations across the SXXP, something we have highlighted in the past, it has ballooned to a record high even considering this.
Certainly food for thought as we look to a life post-COVID.
Dispersion of valuations is as high as ever
