Episodes

Value Investing Is Still Possible in Today's Bloated Market

Episode #380 | September 23, 2024

Episode #380 | September 23, 2024

Value Investing Is Still Possible in Today's Bloated Market

In This Episode

On this week's Stansberry Investor Hour, Dan and Corey welcome Chris Pavese back to the show. Chris is the president and chief investment officer of Broyhill Asset Management. A value-oriented investment firm, Broyhill prioritizes safe, long-term success.

Chris kicks off the show by sharing a few book recommendations and explaining all about Broyhill. He covers how he got his start at the company, what differentiates it from other asset managers, and its core value-investing philosophy. As Chris notes, we've seen one of the longest stretches of value underperformance in history. However, Broyhill has kept pace with the S&P 500 Index over the past decade, despite not holding the "Magnificent Seven" tech stocks and half of the portfolio being in foreign markets. Chris says...

We're just looking for mispriced securities. So we're not focused on any particular sector. A lot of times, we're looking for situations that aren't dependent upon the market going up or value outperforming growth. We're looking for specific catalysts... We've kept up with arguably the strongest headwinds to value investors in history. I'm looking forward to seeing what we can do when and if those headwinds actually ever turn into tailwinds again.

Next, Chris explains what closed-end funds are and why they see such major swings in sentiment. He also gives his macro outlook in regard to the Federal Reserve's rate cuts and what it means for the economy. Chris highlights the fact that today's market is one of the most concentrated in history. But as he points out, there are pockets of value in many areas, especially internationally. And despite all the geopolitical turmoil, he advises against abandoning equities completely.

I don't think the right answer today is to avoid stocks. I think the right answer is to avoid the Vanguard 500 mutual funds or managers that basically just hide behind the S&P 500. [The right answer is] to avoid passive indices. Because there is value out there.

Finally, Chris discusses the importance of having a margin of safety and practicing common-sense risk management. He also mentions that the Biden administration is going hard with antitrust regulation and blocking a lot of deals, which is causing wide spreads in stock price when mergers and acquisitions are announced. Broyhill uses this merger-arbitrage strategy a fair amount to get easy money. Plus, Chris shares Broyhill's underwriting methods to gauge a business's intrinsic value...

We're looking at probability-weighted returns for every position in the portfolio... We're saying, "OK, so... if it plays out like this, we think the business will be worth this much. If we're off base and actually it unfolds more like this, we think the business is worth this much." And we'll have an upside case and a downside case, at a minimum, for every name in the book.