Glossary | Why Pender?
The Tide Goes Out Investing
In extraordinary times, when markets are stressed the broad opportunity set widens. But from a psychological perspective, it sure doesn’t feel like an opportunity.“The tide goes out” in periods like the financial crisis of 2008-2009 when stock prices are driven by the actions and emotions of investors, based on the latest headlines, rather than on any disciplined analytical rigor. These are the times when many companies that are both well followed and well understood become unloved. Suddenly well-known companies become attractively priced because of the actions of investors. Selling begets more selling, as some players are forced to dump their positions, irrespective of long-term fundamentals, and we see this more these days as the rise of ETF investing makes it easy to sell groups of securities at the push of a button.
During these times, one needs a behavioural edge (to be inversely emotional) instead of an analytical edge, and to have the grit to buy securities even though the narrative has become challenging. When negative narratives on near term outlooks drive down stock prices, it can create opportunities.
When the tide goes out, this provides a good opportunity to upgrade a portfolio and we are happy to sell our mediocre, but still very cheap companies, to accumulate positions in long-term wealth-creating businesses, when they are attractively priced.
What happens when markets are more normal? See Needle in the Haystack Investing
Needle in the Haystack Investing
In normal times, when markets are relatively tranquil the opportunity set is narrow. Armies of smart analysts and investors do their research and stocks are priced much more efficiently than less followed stocks. It’s challenging […]
Close the Discount
The classic investing advice is to “buy low and sell high”. The objective of investing in “Close the Discount” ideas is to buy a stock when it is trading at a substantial discount to a […]
Compounding is one of the bedrock concepts of investing – “the ability to generate earnings from previous earnings”1. For us, “Compounders” are those companies that can internally compound their intrinsic value at a mid-teens annualized […]