Investing in value: a wise strategy in times of uncertainty
The collapse of US bank Silicon Valley Bank (SVB) and the subsequent Credit Suisse crisis triggered panic in the equity markets and set the agenda for last week, with the financial sector posting double-digit declines on both sides of the Atlantic.
This latest bad news has perpetuated investor uncertainty at an already difficult time in the markets due to rising interest rates, inflation and growth concerns. However, there are still some strategies that hold up better in times of extreme volatility, such as value investing, as explained by Patrick Nielsen, assistant general manager at MAPFRE AM, and Jonathan Boyar, principal of Boyar Value Group and advisor to the MAPFRE AM US Forgotten Value Fund.
"Value investing is a good strategy throughout the investment cycle, but it’s particularly important and useful during uncertain times," states Boyar. This strategy consists of buying quality stocks at a price below their intrinsic or real value, with the expectation that their price will increase over a given period of time.
For Boyar, value investing has "a margin of safety," because even if the forecasts are wrong and the situation worsens geopolitically or economically, the investor "is buying something so cheap that it should do well over time."
"It’s particularly important to remember that, during tough times, cash and short term bonds are not a great long term investment, as over time inflation wipes out their returns," he pointed out.
The key to value investing is patience, as it requires a long-term view with a horizon of at least two to three years. "You have to be patient and be willing to wait. You have to be willing to go against the grain and against what is popular at the moment, and take a more long-term view," he stressed.
However, as Nielsen points out, investors "are emotional," so you need to have a "very safe and proven way of looking at things." "What we think is that, in good times, when everything is going very well, people tend to get carried away by their emotions and forget that they have to work hard to generate value," MAPFRE AM's assistant general manager noted.
In times of uncertainty, MAPFRE's value proposition is to adapt each product to the specific needs of investors and offer them what suits them at any given time.
To watch the video interview with Patrick Nielsen and Jonathan Boyar, click here.