September 2019 Update

Be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before. - James Montier

The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table. – Warren Buffett

August brought a welcome change in the air. I’ve noticed the usual articles and news stories decrying the “death of value investing” changing their tone for the better. Investors are starting to recognize, and sentiment starting to lean towards the opportunities offered by cheap stocks today. Good news for us, and not a moment too soon.

I’ve noted here over the past how “value stocks” have gone from being simply cheap, to your-grandchildren-will-thank-you cheap, to once-in-a-lifetime-generationally cheap. They got this way because every other form of investing sounded and felt more exciting. After all, why buy a boring “old world” company if XYZ Corp is “changing the world”? Few investors stopped along the way to ask if the boring old companies are still worth anything, or if they might be paying too much for the glamorous new XYZ’s of the world.

In the stock market, its pretty much an iron clad rule that excitement is inversely proportional to prosperity. The most boring businesses, overlooked and unloved, tend to do a better job of that. In fact, a strategy of systematically buying cheap stocks with good cashflow has created the highest long run returns of any tested strategy through the market’s long history.

So could it be that now, finally, investors are returning one-by-one to actual investing? That is, paying attention to cashflow, valuation and growth?

The numbers have been squarely on our side for some time now. We’re in the midst of one of the greatest generational opportunities for cheap stocks ever. The missing piece, public interest, is just starting to click into gear. I think our faith and patience is about to be rewarded.

Recommended reading

Gain advantage by playing where no one else is playing: https://fs.blog/2018/10/long-game/

Proof that worrying is a waste of time: https://elemental.medium.com/most-things-you-worry-about-will-never-actually-happen-83bff850c5f9

A good summary of investing headspace: https://fs.blog/2015/03/carol-dweck-mindset/

Cordially,

Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth