Another Great One by James Montier

Read the whole thing:

“…there is a simple, although not easy…alternative (to  benchmark-focused investing)…use a value approach across a wide range of assets. Buy when an asset is cheap, and sell when an asset gets expensive – buy low and sell high, a  sensible approach to both the preservation and growth of capital.

Valuation is the primary determinant of long-term returns, and the closest thing we have to a law of gravity in finance. For instance, buying assets when  they are expensive (high price/earnings ratios in the equity space and low  yields in the bond space) tends to result in low returns. In contrast, buying  cheap assets generally leads to high long-term returns. So moving your assets in  response to valuation signals makes sense.

Of course, there is a downside to this style of investing. In order to pursue  a value-driven approach you need two key traits – patience and a willingness to  be contrarian. Unfortunately these traits are in rare supply, and become almost  extinct when people act in groups (such as committees).

Let’s end as we began with a quotation from Sir John Templeton: “If you buy  the same securities as other people, you will have the same results as other  people. It is impossible to produce a superior performance unless you do  something different from the majority. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest  fortitude and pays the greatest reward”.


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