Vol. 3, No. 15 — Value works, even if you're unemployed and live with your parents
Remaking the case for being a value investor; Stocks are getting expensive; A recession is unlikely, despite American families getting poorer in the past year; Value in distribution and food retail
HOUSEKEEPING: There was a typo in last fortnight’s issue. In Cost of capital, I wrote that credit spreads rose 7bp to 5.5%. That’s wrong. In fact, credit spreads fell 8bp to 1.6%, while the average cost of debt rose 7bp to 5.5%. Sorry.
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In this issue
Quote from Jerry Seinfeld
Cartoon: The Taylor rule
Value works, even if you’re unemployed and live with your parents
Cost of capital
A pillowy-soft landing
Regions and sectors
Stock screen
Debt cycle monitor
Investment idea
Read time: 28 minutes
Quotation
“I'm not an investor. People always tell me, ‘You should have your money working for you.’ I've decided I'll do the work, I'm gonna let the money relax.”
— Jerry Seinfeld
Cartoon: The Taylor rule
Value works, even if you’re unemployed and live with your parents
Value investing has fallen out of favour. It's time to remake the case for going against the grain.
•••
George Constanza, the bald one in Seinfeld, makes lousy choices. "Every instinct I have, in every aspect of life, be it something to wear, something to eat—it's all been wrong." But George turns his life around, within minutes, by resolving to always do the opposite. He scores a date, mixes up his wardrobe, and gets a job with the Yankees. Investors should follow his lead.
All red-blooded, money-hungry stock pickers want to beat the market. Punters and professionals alike spend hours scouring screens and testing strategies. But following the crowd and instinct leads to poor results. Instead, if you're an active investor, you should be a value one, buying stocks for less than their intrinsic value. This strategy works. It outperforms and is the soundest approach. It's also countercyclical as it uses our innate cognitive biases to help rather than to hurt us.