The Opportunity. Gauging the valuation of global asset classes is hard. Most investors get caught up in the endless streams of information and often give up on the attempt to measure value on a global scale. The difficulty is only compounded by the fact that reversions to a given average can take months or even years to manifest.
Our Value Approach. When looking at global assets, the key to understanding value is to understand the relationships between markets. On a macro level, there are no absolute measures, but rather, investors are forced to understand the world on relative terms. For example, when one currency rises, another falls, or when money flows towards one asset class, by definition it has to flow out of another. In this world of relative values, the disciplined investor has to gauge global sentiments, extreme investor behavior, and geopolitical maneuvering.
Value. We identify and invest in undervalued opportunities across the globe. We begin with the premise that over the long term, economics, politics, and investor sentiment drive certain asset classes to points of extreme overvaluation and undervaluation. We then apply our rigorous research techniques to determine appropriate entry and exit points, our risk of loss, and our long term potential gains.
Buying and Selling. Our portfolios rely mainly on the availability and proliferation of exchange traded funds (ETF) and similar products. While our portfolios can be concentrated in a few positions, often, those positions are a basket of stocks, commodities, currencies, etc. that provide an additional layer of diversification. We also view cash as an asset class, and do often maintain large cash positions for various reasons ranging from wanting to remain flexible, ensuring liquidity, or anticipating outperformance of the asset. We do not fall in love with an asset class, but rather, look through our universe of investable opportunities to find the most attractive risk/reward tradeoff.
We do not try to replicate any index. Instead, we prefer to uncover and buy undervalued securities, and then sell them after their value has been recognized by the market. While this approach may lead to making difficult decisions, like investing in shunned asset classes, or selling overpriced, but popular securities – decisions that often go against the generally accepted popular trends of the day – over the longer term, it leads to significant outperformance. As we wait for the market to recognize the intrinsic value of our positions, we monitor the portfolio for any fundamental changes and maintain our discipline in all buy and sell decisions and in all market environments. This is the key to our success.