After the Fall

(Mar 2020) Mark and Ben compare the current state of the market and our funds with those experienced during the TMT shock of 1999/2000 and the GFC of 2008. They also explain their views on some stocks widely held by growth managers as well as those value stocks which they consider particularly compelling at present.


We have recently experienced a painful period of fund performance. 

First, our value investment approach has struggled against the longest period of value stock underperformance in living memory. Our funds now have average P/B ratios of 0.30x and 0.49x for our small-cap and large-cap strategies respectively. Such valuations are surely comparable with the lowest valuations ever seen in any developed market. We know from our own experience and from observing other markets that the entry valuation is the critical determinant of subsequent returns. We also know that value investment works well over the very long-term.

Second, the latest drop in Japanese equities is comparable to our experience in 2008 and to the 1990-1992 collapses. In little more than a month, Japan`s TOPIX index fell -31% from peak to the latest trough, taking Japan from a position of undemanding valuations to among the cheapest ever seen. Yet, for all its widely discussed faults, Japan is a stable economy with a resilient corporate sector. Japanese companies are still globally competitive in many industries through technology, long-established know-how and experience in markets with many strong brands.

The opportunity that now presents is likely to prove exceptionally rare: desperately cheap stock prices after a decade of value underperformance within a market at historical valuation lows. It is an opportunity that may not last long and may not be seen again in any of our lifetimes.