Should bottom-up investors worry top down? GlobeInvestor
A hot button topic within financial circles is whether we are already in a recession, or entering one soon.Does the economy impact investing performance? Should investors worry about the big picture or should they be economy agnostic?Long-term investors, such as value investors, believe that it is far more rewarding to focus on valuation and bottom-up analysis than the big picture.
Nevertheless, Ben Graham, the father of value investing, did not advocate that investors abstract from the big picture. It’s vital to recognize that these new processes are driven by models that assign a probability of zero to something, simply because it has never happened and by rocket scientists with computer models that use the past to forecast the future and do so with completely unjustified assurance. In 2008-09, most statistically cheap stocks were sold with the same ferocity as expensive stocks.This same scenario played out in the recent market sell-off in December 2018.
“The thing I didn’t do, from Day One, was properly assess the severity of this liquidity crisis,” Mr. Miller said in an interview, adding that, “This is the most serious financial problem since the Depression. It is global, it is systemic, and it is unclear how the financial system is going to be regulated, and behave. So it is very difficult to assess right now.”No strategy works in all markets, and no strategy works forever. It also seems that we now go from one extreme to another.
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