20 May 2019
We're often asked to explain our investment ‘style’. But the trouble is that investment styles may rely on arbitrary stock classifications that don’t tell the whole stock story.
For example, ‘value’ stocks are classically defined as those that trade at low prices compared to their book value. And with that framework, ‘growth’ stocks are sometimes defined as simply the opposite of value stocks.
We don’t follow classifications, we do business analysis
Our research and analysis looks into all aspects of a business, as a long term business owner would, including returns on equity, growth in book value and revenues, balance sheets, etc, in order to calculate our view of a company’s ‘intrinsic value’. We then aim to invest in good quality companies trading for less than that.
We think some traditional defensives look overpriced
When investors are very excited about a company’s potential growth, even when it is justified, their excitement usually pushes the price up. Think Amazon and Netflix - exciting, high growth companies, with high price tags to match. You usually wouldn’t put staples and utilities in the same bucket as the exciting shares. Yet the ‘momentum’ bucket of stocks, which is usually filled with particularly glamorous high-growth companies, is currently full of these defensives!
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