3,459 days …..as of this writing, that is the length of the current ‘bull market’ surpassing the October 1990 through March 2000 run-up as the longest ‘bull market’ in U.S. history with the second highest return of 325%. Much of these market gains have been fueled by a record pace of stock buybacks, record earnings, a healthy economy, positive investor sentiment, and tax cuts, which all fuel stock prices. It’s unclear when – or if – this ‘bull’ will stumble, but it is clearly time to adjust client portfolios and expectations by taking some risk out of the portfolio. We strongly believe that Value Investing is a smart form of risk management. It has been said that “high risk comes with high prices …. Recognizing risk often starts with understanding when investors are paying too little heed……Awareness of the relationship between price and value – whether for a single security or an entire market – is an essential component of dealing successfully with risk.”1
To support this thought, in the seminal paper “Contrarian Investment, Extrapolation and Risk” value strategies yield higher returns over the long-term: low price-to-book stocks (i.e. value stocks) outperformed the high price-to-book glamour stocks 73% of the time over one-year periods, 90% of the time over three-year periods, and 100% of the time over five-year periods.2 These statistics were further validated by O’Shaughnessy’s observation of returns from 1963 to the end of 2009, where the cheapest decile of stocks with respect to P/E ratios returned 16.25 per year versus the index return of 11.22% which greatly compounds wealth over time.3
BPO Capital LLC has uncovered an active value manager that can potentially add even greater risk management through a highly disciplined approach allowing them to ‘cherry pick’ some of the highest quality companies at a significant discount and sufficient Margin of Safety. Through August 24, 2018, the MVP Value Strategy has delivered strong returns relative to the benchmarks and peer group – the SMA has delivered 14.08% (YTD) versus the S&P 500 return of 8.87% and the Russell 1000 return of 4.42%.
We believe value stocks can allow your client to maintain their respective equity exposure, but with potentially greater returns and lower volatility – consistently. What’s not to like?
If you would like to learn more about our strategic partner, Metis Value Partners (MVP) and their approach to value investing, international value investing and/or their global dividend value investing strategies, please contact us via email firstname.lastname@example.org
- Howard Marks, The Most Important Thing, pp. 46-47
- Lakonishok, Vishny and Shleifer, ‘Contrarian Investment, Extrapolation and Risk’ (working paper, 1993)
- James P. O’Shaughnessy, “What Works on Wall Street”