Apr 23, 2022 · 27 min · 11 segments
What do you do when your flagship fund goes from the top of its class to close to the bottom in a matter of weeks? From market trouncing to market lagging? That is the challenge facing this week’s…
Where everything's changed is you have now value in favor over growth, so you have a massive rotation.
You have legacy financials that are rallying strong and you have high multiple stocks that are really being used as sources of funds for people that are rotating into the value names.
And of course, extended into the uncertainty and now an actual war between Russia and Ukraine.
The way we think about it is When people feel good about themselves, when they feel confident about where they are, they are willing to look out longer term.
They're willing to look out three to five years, and they're always asking themselves the question, how good can this be? If things continue to be well, how big can this company get to if things go right? At the same time, when you have an environment, when you have fear over greed, your time horizon shrinks, and then everything is about here and now.
It's all about what's the free cash flow yield, what is the current valuation, and everyone's kind of running through the same door, and the door is never big enough to accommodate everyone.
In terms of what hasn't changed is from our standpoint, you know, the world is cyclical.
So there's always something out there, that's what I mean that everything's cyclical, that gives investors pause and forces them to start pricing in tail risks.
The range of outcomes expands and we're now worried about what can go wrong and how wrong can it really be.
And when that happens, like I said, when we feel good about the future, no multiple is high enough.
Where everything's changed is you have now value in favor over growth, so you have a massive rotation.
You have legacy financials that are rallying strong and you have high multiple stocks that are really being used as sources of funds for people that are rotating into the value names.
And of course, extended into the uncertainty and now an actual war between Russia and Ukraine.
The way we think about it is When people feel good about themselves, when they feel confident about where they are, they are willing to look out longer term.
They're willing to look out three to five years, and they're always asking themselves the question, how good can this be? If things continue to be well, how big can this company get to if things go right? At the same time, when you have an environment, when you have fear over greed, your time horizon shrinks, and then everything is about here and now.
It's all about what's the free cash flow yield, what is the current valuation, and everyone's kind of running through the same door, and the door is never big enough to accommodate everyone.
In terms of what hasn't changed is from our standpoint, you know, the world is cyclical.
So there's always something out there, that's what I mean that everything's cyclical, that gives investors pause and forces them to start pricing in tail risks.
The range of outcomes expands and we're now worried about what can go wrong and how wrong can it really be.
And when that happens, like I said, when we feel good about the future, no multiple is high enough.
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