To the hunter go the spoils

Being a value investor can be exceptionally dull – but the evidence is that it works.

Being popular shouldn't be high on the value investor’s wish list. Instead, they tend to find themselves heading in the opposite direction to the crowds.

During market booms, whilst the rest of the market is celebrating their effortless gains with confetti cannon and expensive champagne, the value investor is sitting alone in a dark corner sulking with a glass of water (no slice of lemon obviously - too expensive).

On the other hand, when the market has dropped significantly, value investors risk being seen as the people dancing and singing during a funeral.

Mostly, however, value investors are neither overly exuberant nor pessimistic. They just go quietly about their business of searching for opportunities to buy stocks at discounted levels. They are quite easy to miss in a crowded room.

We’ve been following the value investing philosophy since 1998 and have been showing our members the benefits in our Growth and Equity Income portfolios since 2001.

We discussed part of this philosophy in our recent ‘Time to go hunting’ insight article. We promoted the idea that highly volatile times in the market should be seen for their opportunities of discount prices rather than anything to fear. We practice what we preach in our portfolios and we took advantage of that volatility to top up on some companies and buy some new ones.

The overall results for the September quarter show both portfolios just about keeping their head above water, with returns of -0.3% and 1.0% for our Growth and Equity Income portfolios respectively, compared to -5.8% for the benchmark All Ordinaries Accumulation Index.

But results over one quarter reveal more about the investing environment than they do about a particular investing approach. Long-term results are far more important and demonstrate how our approach has been working since 2001. Since inception to 30 Sep 15, our Growth Portfolio has outperformed the index by 2.4% a year and our Income Portfolio by 5.9% a year. These are far more pleasing results to us than any short term outperformance. You can now invest alongside these portfolios as well through separately managed accounts.

Those managing their own money have enjoyed similar success over the past 14 years by following our recommendations. Our latest recommendations report, independently audited by Grant Thornton, shows that our Buy recommendations returned an average of 14.1% a year since 2001.

A lot of time and effort is spent managing a portfolio and using a value investing strategy can sometimes be a difficult task, especially when news outlets are proclaiming “a global bloodbath sparking financial crisis fears”. Our results over a long period show that our value investing strategy has been successful in building wealth as well as protecting it.

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