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Where all men think alike, no one thinks very much
“Where all men think alike, no one thinks very much.” – Walter Lippman
This quote was the premise of one of Australia’s longest-standing investment managers, Paul Moore, when presenting at the industry-leading Inside Network Equities and Growth Assets Symposium this month.
Commenting on the seemingly never-ending and ubiquitous “groupthink” that pervades investment markets, he suggests that the “industry has never been more backward-looking or process-driven.” And Moore is in a strong position to know, with several decades of experience across multiple crises, all while implementing the same approach to stock selection.
Crowded trades and herd behaviour have held most investors in good stead for close to a decade, with the momentum and passive flows ultimately rewarding those invested in the most popular sectors. But one doesn’t want to be the last one holding the parcel when the tide turns, with Netflix and Facebook prime examples, as both fell by more than 20 per cent on the slightest weakening of their numbers.
While Moore’s PM Capital does not seek to forecast the future, it finds much comfort in understanding businesses so well that it can have confidence and conviction in any valuation it creates, and the ability to stand by that for an extended period of time.
There are no shortages of examples, after decades in the market, with Las Vegas or Chinese casinos and even European brewers among the “value” success stories. He highlights what appears to be a quasi ’10-year rule’ in which valuations and opportunities tend to change every decade or so. This, he says, is evidenced by the fact that few companies remain in the top 10 largest by market cap in the world each decade, with Facebook the latest casualty.
Drawing from his early experience looking at Coca-Cola, he saw an otherwise quality company move from being undervalued to overvalued over a decade, only to reverse the same trend over the next ten years. It is this experience that gives Moore confidence that “the worst returns ever for value stocks” may be coming to an end, and highlighting that for “true long-term investors, this is where the opportunities are.”
The opportunities come only after record absolute returns and relative valuations were delivered by the Nasdaq amid a growing number of anecdotes confirming the existence of excess liquidity. Many of the tailwinds of the last decade, be it weaker regulation, quantitative easing or deglobalisation, are coming to an end, with investors urged to consider the alternatives.
One such alternative, he says, is payments leader Visa, which has been sold-off heavily on the emerging threat of digital payments but remains the infrastructure on which the payments system operates. A similar case can be made for European financials including ING Groep, in a sector that Moore believes to be among the cheapest in the world today.
Having strong conviction and a long time horizon are “critical factors” in delivering long-term success, he says, particularly in a market that is “increasingly short-term in focus.”
