Recap: Insights into our FCF Multiple

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“I know that I know nothing.” Socrates, Greek philosopher (469-399 BC)

Uncertainty is a constant when it comes to investing as well as in life. It is simply impossible to account for all known unknowns and unknown unknowns. We can, however, use this lack of certainty about the future in our favor. Many investors are uncomfortable with uncertainty, thus prices drop during periods of presumably greater uncertainty, while prices rise as the perception of certainty increases. The more certain a company’s future becomes, the less likely is the investment’s potential to outperform the broader market, as this certainty of information is being discounted. Many investors prefer certainty because they “feel” safer, yet, as a consequence, are likely to underperform the market after fees. In order to take advantage of other market participants’ biases in times of uncertainty - in an ever-changing and dynamic world - it is essential to internalize the concept of Reversion to the Mean. By doing so, our investment philosophy strives to give us a higher probability to outperform the market in aggregate.

In our Performance Update Q4 2015 “Focusing on Data rather than following the Herd”, we conducted a study on Enterprise Value to Free-Cash-Flow (EV/FCF) and compared high valuation stocks (glamour basket) with low valuation stocks (value basket).

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Goran Vasiljevic

Managing Director (CEO, CIO)

 

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