Industry Voice: What role does the opportunistic investing play in your team's stock selection?

Dave A Daglio, The Boston Company US Opportunities team

My team has been investing the way we do for the last two decades: We try to think differently from the average active investor. One reason that many active investors are doing poorly is that they are all attempting to play the same game as others in a very crowded space. We have to go against this herd mentality, and there are three ways in which we do this.

One is how we value companies. We believe intrinsic value is the best compass for navigating the market. Our estimate of intrinsic value is based on a company's normalised earnings prospects, adjusted for economic assets and liabilities. Our stock positions reflect a view that business is trading far from its intrinsic value. A long-term view allows us to focus on key drivers of value and helps us to avoid anchoring on near-term trends.

The second is how we do our fundamental research. We have a quick-response group of generalists committed to a proprietary research platform. The platform produces out-of consensus industry research, enhances fundamental insight, and assists in the continual monitoring of investment theses. The platform allows better insight to short-term uncertainty, a faster idea-to-ownership timeline and quicker recognition of investment-thesis drift.

A third way is the way that we try to incorporate not just micro views but also the macro view, with a heavy dose of common sense. Valuation and fundamentals must be understood in the broader context of the economy and the business cycle.

We try to understand what can be distorting underlying fundamentals. Recognising how macro distortions impact individual companies can unlock significant value creation and highlight opportunities that are not well understood by investors solely focused on the micro.

 

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^{This is a financial promotion for Professional Clients. This is not investment advice. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When investments are sold, investors may get back less than they originally invested.}

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