Market veterans search for value

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This post is a guest contribution by David Shvartsman who blogs about big-picture trends on the Finance Trends Matter site.

Today’s post focuses on areas of investment that are starting to look attractive to seasoned investors.

Some of the well-regarded market veterans you’ll hear from on this topic are Julian Robertson, Jeremy Grantham, Jim Rogers and John Paulson.

Whether you’re currently bullish or bearish on stocks and other asset markets, we think you’ll find some interesting points of views expressed here. Let’s jump right in …

A tiger’s eye view of the market

Famed Tiger Management founder, Julian Robertson, recently joined CNBC to talk about the economy and his view of the markets.

While he offered a rather dour long-term view of the country’s economic prospects, saying the US faces a “doozy of a recession” that could last more than a decade, he also claimed to be currently buying US shares.

Some of the stocks he favors are Microsoft (MSFT), Baidu (BIDU), Apple (AAPL), Mastercard (MA), and Visa (V).

Robertson also spoke of his position in a “curve steepener” trade, a derivative which allows one to speculate on (and hopefully profit from) the difference in yield between two-year Treasury notes and longer-term ten-year Treasury bonds.

Rogers seeks sound fundamentals

Jim Rogers is not too keen on US shares, given the fundamentals and the level of recent government interventions in the economy and the markets.

However, Rogers said he recently covered some of his short positions in shares and he continues to buy shares in China and Taiwan. He has also been putting money in the Japanese yen, the Swiss franc and in agricultural commodities.

One of the main points Rogers has been stressing lately is his desire to find assets with what he calls “unimpaired fundamentals”.

He notes we are currently going through a period of forced liquidations. When this stage passes, the assets in which the fundamentals are sound will lead the next bull market. Rogers continues to see commodities meeting this test, arguing that a secular bull market is still intact based on supply and demand fundamentals.

John Paulson: betting on finance turnarounds

Hedge fund manager John Paulson is doing quite well for his investors. The three main funds managed by his firm, Paulson & Co., are reported to be up between 15% and 25% this year. The firm’s outperformance comes at a time when hedge funds as a whole are facing their worst losses on record.

Interestingly, Paulson, a man who made a name (and fortune) for himself by shorting subprime-mortgage related securities and banking shares, recently established a fund to invest in distressed financial companies. The Paulson Recovery Fund is up and running, but its investment team is reported to be sitting tight for now and waiting for the expected bargains to appear.

Grantham on the danger of buying too soon

And finally, we come to well-known investment manager Jeremy Grantham.

In a recent interview with Barron’s magazine, Grantham said his firm, GMO, would start to look for “cheap pockets of global equities” which they would begin buying over the next few months. Still, he notes the danger this time around is in buying too early.

As Grantham said in his recent letter to GMO clients:

“At under 1,000 on the S&P 500, US stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10 prices, but even more so. History warns, though, that new lows are more likely than not.”

For a professional investor/money manager such as Grantham, the risk in buying shares at seemingly depressed levels is that shares continue to head lower for a time, becoming more depressed. You might call this danger, “the curse of the value manager”.

Do you see value?

So now that you’ve heard some ideas from a few well-known investors talking about their books, do you find any items of interest in this current market environment?

Are you staying on the sidelines, or are there some areas of value open to you? How do you view the markets at this time, and have the long ideas quoted above offered any possible insights? We’d love to hear your thoughts.

Source: Finance Trends Matter, October 28, 2008.


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3 comments to Market veterans search for value

  • SA Youngster

    I believe the length of time you’re wanting to invest for is very important at this stage. If your concern is quarterly performance against cash, you probably haven’t slept for a while. If you’re taking a multi-year view, then value should be easy to find, no matter where you’re looking.

  • Thank you for adding this article to your guest posts, Prieur. It is an honor to share my work with your visitors.

    Best regards,

  • Frank

    Thanks for sharing all your wonderful information. Other than a substantial investment in a short fund, I have been in 3-month T-bills for the past 3 years, and US Eagles, expecting this collapse to happen. I have also lived outside the USA for the past 8 years and have watched the US dollar collapse against a “3rd world currency”. A young investor can possibly begin to dollar cost ave. into this market, but I think the lows are still ahead of us. Many Americans unfortunately have been living over their heads for many years, buying things they didn’t need with money they didn’t have, building up enormous debt with credit cards and home equity loans, feeling rich by watching their 401K portfolios and their home values increase. That is all gone now and they are loaded with debt. I think people are going to continue to be forced to liquidate investments in stocks and mutual funds, even gold, to maintain their debt payments and lifestyles. Lowering the interest rates to “o” will have no effect on stimulating the economy any longer in my opinion. How many Americans will be able to take on additional debt? How many foreigners will be able to buy American products at the pace they were over the past few years ? Where will the money come from to stimulate the economy? The insane spending sprees Are Over !!!!! Unfortunately, I think the pain will last for a long time. The people who will have not lost their savings and did not put themselves in debt will have opportunities to get wealthy. We are in an era where “cash is king”, cash in short term T-bills, foreign currencies, or gold. The investor with PATIENCE will win this race !!!!!!!…………FL

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