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LATEST INSIGHTS
Thoughts, insights and opinions from our team of investment experts
On Competitive Advantage
We believe the intensive study of industries, business models, and management teams in the context of competitive advantage is critical in constructing investment portfolios. At Generation, we prefer to invest in high-quality businesses with sustainable and growing competitive advantages run by great managers.
Long Live Value Investing
Some have argued that value investing is dead. Growth names have considerably outperformed. Passive (index-linked) investments now represent the majority of ETFs and mutual funds. These two phenomena have been reinforcing because the growth companies—pricier companies whose valuations tend to overshoot as growth is prized—represent such a disproportionate portion of major indices.
To us, the answer is simple; by employing the tenets of value investing we can buy high-quality undervalued securities that are being ignored, while avoiding poor quality or expensive ones.
Too Great Expectations
Our expectations are already lowered for general market returns. When expectations are this high, our fear of losing overcomes any fear of missing out. We still see a high probability of an economic downturn and remain defensively positioned for that reason as well, and we continue to hold some cash and hedges that should protect our portfolios when everybody else’s expectations are lowered.
A Grand Illusion?
Only time will tell whether today’s lofty index valuation levels represent a grand illusion relative to prevailing and forthcoming economic underpinnings. Either way, our macro and micro analysis suggest that investors are simply too optimistic about stocks generally, boosting overall risks. Market declines may be closer than they appear.
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