History Rhymes

Mark Twain (allegedly) once said "History doesn't repeat itself but it often rhymes".

At HNW Financial, we believe adhering to style diversification has been a critical component of our client’s long term success. At some points the Value style will outperform Growth, and at others Growth will outperform Value. Neither style is “right” or “wrong”. We align you with world class managers who adhere to their style at all times. You don’t want all of your managers doing the same thing at the same time – one style will zig while the other will zag – reducing volatility when you need it the most. A bargain with heaven!

Value as an investing style has been meaningfully out of favor for most of the past dozen years. Some pundits are even declaring that value is dead. This reminds us of Sir John Templeton’s warning: The four most dangerous words in investing are – “It’s different this time”

Obviously, we don’t believe that value is ‘dead’ and are confident that the basic principle of buying a dollar for 70 cents will always make sense.

When faced with situations that don’t behave as expected, we think it’s important to always return to “first principles.” In this context, first principles of investing, in our opinion, include diversification and prudent asset allocation.

So whether it is truly ”different this time” and a strategy of “buy high and sell higher,” which has worked for much of the past decade, continues to outperform is open for debate. However, our experience leads us to believe this is highly unlikely. This is why we stick with our value mandates (and also our growth mandates) both in good times and bad.

While the past decade has been challenging for the value style, when you consider first principles, we think that not putting all your eggs in the same basket (prudent asset allocation) and buying a dollar for 70 cents (the core of value investing) are enduring. At times, staying consistent with such principles can be difficult, but our experience tells us our discipline will be rewarded in the long run.

We will leave you with a quote from a legendary Canadian value investor, Peter Cundill “Sooner or later, the market will do what it has to do to prove the majority wrong.”

Related Document