Investment philosophy

We are an evidenced-based, disciplined value investor. Our holistic investment approach is designed to take advantage of mispricings in the equity market. In our view, these are primarily the result of human error, as investors tend to extrapolate short-term events too far into the future.

Our main task is to identify and invest in fundamentally undervalued companies. Over the years, we have developed and continuously refined a systematic investment process that enables us to better control our emotional biases and rationally evaluate companies.

All strategies are based on a fundamental, disciplined and scalable stock selection process that has been internalized and implemented by our experienced investment team.

"Every value investor needs the inner strength to be able to make unpopular decisions"

Goran Vasiljevic, CIO

Investment principles

Our core beliefs form the basis for our discipline in implementing and continuously developing our investment approach:

  • First, we believe that over the long term, valuations drive stock returns by anchoring market prices to the hard reality of cash flows. In the short-term, stock prices are driven by the markets’ changes in expectations and its level of uncertainty.
  • Second, the most important task of every active manager is to distinguish between a company’s fundamentals and the expectations implied by the price.
  • Third, emotions and heuristics systematically cause investors to make forecasting errors and are therefore the main reasons for mispricings in the marketplace, resulting in elusive market prices which we try to take advantage of.
  • Fourth, the future is not predictable and far too complex to grasp in a single number.
  • Fifth, past performance is a horrible indicator for future outperformance. We focus on the long-term and consider short-term investment results transitory and meaningless to evaluate investment processes.
  • Sixth, mean reversion (“cycles”) come in all shapes and forms and are the source of mispricings as they ultimately originate in human behavior. Fundamentals, psychology, prices and returns will rise and fall, thereby providing us, the active investors, with opportunities to make mistakes or profit from the mistakes of others.

Why value works

The debate as to whether and why value investing works has been a matter of debate in academics as well as for investment specialists over the past decades.

The main reason for our conviction is the behavior of market participants. As long as people make investment decisions, there will be behavioral influences on the marketplace, resulting in price exaggerations in both directions. Emotional biases create investment opportunities and undervalued assets are worth buying. Of course, undervaluation is no permanent state, but a recurring phenomenon.

We also recognize the risk argument. The so-called “Fama-French-Camp” is of the opinion that the disproportionate outperformance is derived from risks that have to be compensated for. These include, for example, the economic sensitivity or the financial stability of a company.

In our view, institutional constraints are the third reason for the existing value premium. Due to principal-agent conflicts, some market participants are often short-term oriented and risk-averse. Agents working in their own interests further exacerbate herd behavior and prevent controversial positioning.

Overall, we are convinced that all three factors play a role and also influence each other. From this we finally derive a profitable investment strategy.

The following Value Insights deal with our investment philosophy and fundamental assumptions in more detail. They provide the reader with a well founded, comprehensive background to our beliefs.

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