1.
Valuations can remain higher for longer
Here is an interesting take on the high(er) valuations of stocks that we have continued to see across the world despite the contraction happening in the global economy.
Whether you use Hussman’s measure, the Buffett indicator, or Shiller’s CAPE (cyclically-adjusted price-to-earnings) ratio, the logic is always the same.
But, there’s a huge problem with this logic—there is nothing that says that these metrics have to return to their long-term averages. In fact, I believe the opposite. Valuation multiples are likely to stay above their historical norms for the foreseeable future. Why?
Because investing is much simpler today than it used to be. With the rise of cheap diversification over the last half century, investors today are willing to accept lower future returns (i.e. higher valuations) than their predecessors. This has fundamentally changed valuation metrics and made historical comparisons less useful than they once were.
2.
Selling on high valuations is a bad idea
On similar lines, here is another view from Akre Capital (founded by the famous investor Chuck Akre)
We try to resist the temptation to sell (or trim, even) on the basis of valuation alone. We are unfazed when our businesses are quoted in the market at prices above what we would pay for them. It might be worth reading that last sentence again for emphasis.
Why? For three reasons…
First, when selling because of valuation, it is often with the idea that there will be an opportunity down the road to buy back in at lower prices. In our experience, it seldom works out this way.
Second, of the thousands of publicly traded companies, there are probably fewer than one hundred that meet our criteria, and opportunities to buy them at attractive prices are few and far between. Unlike average businesses that can be traded like-for-like on the basis of valuation alone, growing and competitively advantaged businesses are just too hard to replace.
Third, the very best businesses tend to exceed expectations. What may seem like a high price today may be proven to be perfectly reasonable in hindsight.
3.
Exercise on weekends if you can’t during the week
A new report published Tuesday in the journal JAMA found that people who exercised throughout the week and “weekend warriors,” who pack theirs into the weekend, saw similar reductions in risk of heart attack, heart failure, atrial fibrillation and stroke, according to the study.
Thought of the Week
“It’s funny how sometimes prices seem to go against all the rules”
~Franklin Delano Roosevelt on Gold
Video of the Week
Seth Klarman does not do a lot of interviews or media appearances. So, when he does, we should listen.
Intelsense Insights
Quiver, our smallcase, has been performing consistently well since its inception.
It is the 2nd best performer amongst all smallcases in the last 1 month, 7th in the last 6 months and 10th in the previous 1 yr.
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