We are value investors for many reasons, one of which is that establishing an estimated intrinsic value provides an anchor or a solid point of reference from which the turbulence of markets can be viewed dispassionately.
Calendar 2017 recorded the sixth consecutive year of positive real total returns from all major asset classes for Australian investors. It was the first time in history that everything has gone up for six straight years for Australian investors. As the market continued its relentless climb, with minimal volatility, value investing had been relegated to history and even I began to question the relevance of value investing myself.
But as recent market weakness has shown, momentum doesn’t gently or slowly roll over, it violently reverses, wiping out a large proportion of previously accumulated gains and delivering very volatile overall returns.
This whitepaper identifies why we adhere to value investing and the importance of prioritising risk minimisation – particularly the risk of capital impairment.