Strategy: Cool Bear Market Heads Prevail
Value investing in bear markets requires keeping a cool head.

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  1. Initially, a cool head NOT to buy

  • Here we must avoid relative “value” trades that only anchor on percentage drawdowns from peak valuation, or on relative multiples versus peer investments.
  • But also value traps, with deteriorating absolute fundamentals and no clear catalysts.

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  1. Eventually, a cool head if we reach truly depressed valuations, in absolute and intrinsic value discount terms.

  • There we need it to buy bargain opportunities as aggressively as allowed for by risk mandates and prudence.

Most human investors will make errors of both (1.) commission and (2.) omission. Our emotions and market sentiment become less reliable during periods of more extreme price movements.

As value investors, we can try to reduce making large errors in stressed markets by reducing the puzzle to good old boring fundamentals.

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This was a @commonstock republication is of an article in PiggyBack Letter 7/2022:

This issue also features:

  1. A main ESG Investing-critical (and anti-ESG-critical) article. An intro has been shared @commonstock here
  2. "PiggyBack's Value Elsewhere" links, to free, worthwhile investing content with long "shelf-life"

Your Analyst,

Johan Eklund, CFA

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