American Values Investments’ strategy entails a long term focus; therefore we do not put much effort or have much confidence in short term market predictions.
A couple of high level observations may shed some light on the difficulty in making such forecasts. First from the fundamental perspective of price earnings ratios stocks as defined by the S&P 500 (SPX) appear to be fairly priced.
Secondly, from the technical point of double digit gains a case can be made for a correction in the near future or that there is more upside before a correction down the road. There are a multitude of other fundamental and technical factors that can be used to justify a bear or bull view of 2013, not to mention the geo-political issues such as the ‘fiscal cliff’ and Middle East unrest.
Then there are the unknowns. Basically, there is a case for about any scenario you desire. Some models will even get it right. All market cycles have ups and downs, and we have been in a range bound market for 12-15 years about the average before a new upward trending cycle.
American Values Investments employs two investment models. One includes the entire universe of stocks, currently around 115, that have scored well enough on our proprietary research analysis to be designated as an American Hero Company. The second model is a diversified, (9 of 10 sectors represented) concentrated (20-30 stocks) group of stocks from among the American Hero Companies that appear to have the best long term investment merit from a fundamental standpoint.
We have used this model for nearly ten years and constantly monitor it for compelling reasons to make changes. Over the course of a year we have changed as many as 6-8 and as few as 2-3. Basically we attempt to invest in quality stocks and rebalance them to an equal weight annually. The rebalancing is to ensure that we practice the discipline of ‘selling high’ and ‘buying low’.
In the current era of historically low interest rates, one of the more popular investment strategies has been one that incorporates dividends as the driver. The Bush tax cuts also added to the attractiveness of dividends.
Dividend yield and dividend growth are two of the twelve to fifteen fundamental metrics we use to determine investment merit. Companies that pay regular dividends have tended to perform better in the long term and companies that grow those dividends seem to do a bit better.
Companies that pay dividends appear to run ‘tighter ships’. Going forward we plan to continue to use dividends in our analysis and will try not to let the tax tail wag the dog.
American Values Investments is committed to a long term strategy that believes good fundamentals will lead to market competitive results. Good economic conditions enhance these fundamentals and encourage growth.
Poor economic conditions erode the fundamentals and make growth more challenging. In the long run the biggest risk to stocks is poor economic conditions. One of the roles of governments is to try to create conditions for favorable economic conditions.
That role is very difficult because what is favorable to one country may be unfavorable to another. Not only is it hard to know what policy is best but also to determine how and how far.
Leading up to the depression the US government tightened money instead of easing, and when it did not work continued in that direction instead causing an even slower recovery. The question now is when to transition from easing to tightening. It seems the US economy has stabilized. But, when will easy money keep interest rates and the currency lower than what the global economy needs for its recovery?
American Values investments operates under the premises that equities are a viable option as an investment for the long term and endorse the concept that some level of exposure is appropriate to most in all cycles. We also believe it is best to invest in companies rather than markets. Companies can have profound influences on our culture with their products/services and how they do business. Our in depth (280+ item) analysis gives us the tool to determine which companies we feel have the values to have the most positive impact.
Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
