Investment

Chart of the Month – How to become friends with Mr Market

by Pierre Mouton

How to become friends with Mr Market

MSCI WORLD PRICE – MSCI WORLD EPS – MSCI WORLD PRICE EARNINGS RATIO

 

 

In his famous 1949 Book “The Intelligent Investor”, Ben Graham speaks about Mr Market.
Mr Market is a strange fellow with some specific attitudes:
Mr Market is very emotional. He can be euphoric or totally depressed.
Mr Market is often irrational
But Curiously Mr Market is frequently efficient, but not always. You never know with him…
Also, Mr Market is quite sarcastic at times and he loves wrongfooting investors.

Who is this guy, Mr Market? He offers you transactions, at your option. You’re never obliged to accept, because he comes every day with new deal offers, and at new prices.
With this in mind, thanks to him you can buy low and sell high. And he makes you feel like the King of the hill. But you can unfortunately buy high and sell low. And you feel like a victim.
But it is never Mr Market’s fault: it’s you who pushes the button to buy or sell, and he serves you, because once again he’s there every day. He never forces you.

So, you get the point: Mr Market is extremely emotional in his behaviour.
But he is totally agnostic to the people working around him.
Mr Market is certainly one of the most scrutinized characters in the world and in history: scientists, strategists, economists, politicians, portfolio managers work hard to try to anticipate his mindset. To try to read his mind?
And what about the immense computer work being done on that purpose!

But Mr Market has absolutely no sentiment.
He neither hates, nor loves any single investor.
Conversely, investors switch from one sentiment to another quite frequently: when they make money, Mr Market is so nice, so smart…. In this case investors feel like they have a superior IQ. They tend to claim loudly that they understand Mr Market, he’s a good friend, they know him very well.

But sometimes the same people will not find enough insults towards Mr Market: when they lose money, he’s stupid, irrational, crazy…… they will never ever again do business with him…
The main problem with Mr Market, the source of his versatility, is that he often becomes obsessive.
The topic of his obsessions changes all the time: it can be interest rates, oil prices, monetary policy, inflation, politics or geopolitics……. This makes a lot of things to worry about.
Easy to guess that so far in 2022, Mr Market has been extremely obsessed by geopolitics with the Russia-Ukraine war, but also by inflation.

But thankfully or not, his obsessions tend to be short-lived. Except the most important: Mr Market has one and only one long term obsession: corporate earnings. If he’s confident they will rise, then he will rise accordingly. If he believes earnings might disappoint, he will discount this setback and turn pessimistic and depressive.

Like for Mr Market, earnings should be investors’ first preoccupation. Investors tend to be blinded by short term factors, forgetting the big picture.
The second preoccupation for investors should be valuations. How much do you pay for a future flow of earnings and dividends?

As shown on the Chart of the Month, Mr Market offers you today transactions at prices that are not unattractive.
Prices have come down while future earnings should rise, hence valuation have shrunk to the levels observed in 2015, 2016 and 2017.
The estimated Price Earnings Ratio for the MSCI World stands at 16 today; this is not as low as it was at the end of 2018 or in March 2020 (it was 13.5), but it is much lower than during the last 18 months (it was closer to 21 times).
This is all investors should worry about long term: are earnings expected to rise, and are valuations reasonable?

This being said, we might be witnessing a change in leadership in markets, from large caps growth, essentially Information Technology and Communication Services, to a more broad-based leadership which would include Financials, Industrials and Energy for example, and this would be healthy.

In this context, we maintain our view that a well-balanced approach with a strong focus on quality will be the right strategy going forward.
Looking back in a few years, hopefully we will claim that Mr Market is a good friend of ours, although we know, Mr Market has no friends.

 

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.

© NS Partners Group

Article tagged by

Return to listing

Related articles you might like

Investment

Chart of the Month – Stock dispersion or the essence of long short equity investing

by Alexis Sautereau
Investment

October General Market Comments

by Pierre Mouton
Investment

Vision 2030: il Piano per diversificare l’Arabia Saudita

by Giacomo Calef
back to
the top
Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

The challenge is to have the right agenda to orient the business, its transformation and the appropriate use of data.

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

It’s all about finding the right balance between making money, capital preservation and liquidity.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Nothing great is created by following the herd. Whoever has heard of Alexander the Average?

Romain Pidoux, CAIA

Add Your Heading Text Here

Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

If you want peace, prepare for war. The same goes with risk management.

OUR FUND SERVICES Fund Engineering & Set Up

We coordinate your fund project from end to end and assist you through all the legal, administrative, regulatory and operational steps required to launch a Luxembourg investment fund.

We assist you with constitutive documents drafting (articles of incorporation and prospectus), the investment management, advisory and distribution agreements, the central administration, custodian bank and domiciliation service agreements, the risk management process, as well as the internal investment guidelines. We organise the operational setup and help you select all the providers and partners you need.

We advise you, file the constitutive documents of your fund and liaise with Luxembourg authorities (CSSF) until approval.

INTERESTED ABOUT OUR FUND ENGINEERING & SETUP SERVICES?

contact ns partners

INTERESTED ABOUT OUR FUND ENGINEERING & SETUP SERVICES?

contact ns partners
OUR FUND SERVICES Distribution support & Fund registration

The marketing of your fund is an essential factor of your success. Yet, distributing funds, both within and beyond Europe, can be a daunting task for investment managers, who struggle to meet their various reporting requirements.

Our seasoned and multi-lingual team masters the intricacies of European regulatory constraints and acts as a single point of contact with the various service providers.

Thanks to our total independence and close relationships with service providers, we offer impartial advice and help you obtain competitive prices. Naturally, our service is tailored to your specific distribution requirements.

We also assist you in devising and implementing your distribution strategy and introduce you to our network of distribution specialists in Europe.

INTERESTED ABOUT OUR Distribution support & Fund registration?

contact ns partners

INTERESTED ABOUT OUR Distribution support & Fund registration?

contact ns partners
OUR FUND SERVICES Independent Directorship

Under new UCITS V and AIFMD directives, the role of the Independent Director has become more important and is now considered a profession in its own right.

Indeed, your fund’s Board should ensure that high standards of corporate governance are applied at all times and have a good professional standing, appropriate experience, act fairly and independently in investors’ best interests and operate with due care and diligence in the performance of their duties. Additionally, the Board should ensure compliance with all applicable laws, regulations and with the fund’s constitutional documents.

Our panel of independent directors are all seasoned fund professionals with over 20 years’ experience in the asset management industry. They also cover a wide range of professional skills and backgrounds, including administration, regulatory, operations, legal, tax, portfolio management and risk management functions.

INTERESTED ABOUT OUR Independent directorship?

contact ns partners

INTERESTED ABOUT OUR Independent directorship?

contact ns partners
OUR FUND SERVICES Risk Management & Compliance

Risk management is in our DNA.

We provide you with an integrated risk and investment compliance management service. Being an integral part of our IT infrastructure, our risk systems guarantee an effective assessment and management of financial risks. They include a full range of risk indicators adapted to the risk profile, the asset class, as well as each fund’s investment strategy.

Based on the best market practices and compliant with ALFI and ESMA guidelines, our risk management services include:

  • Appraisal and monitoring of portfolio risk
  • Regulatory risk and investment compliance (including asset eligibility)
  • Periodic monitoring of asset evolution for UCITS and AIF vehicles
  • Independent NAV supervision
  • Production of customized risk management reports
  • Historical VaR, parametric VaR and Montecarlo simulation

INTERESTED ABOUT OUR Risk Management & Compliance?

contact ns partners

INTERESTED ABOUT OUR Risk Management & Compliance?

contact ns partners
OUR FUND SERVICES Investment Management

Thanks to our 55 years’ experience in managing conventional and alternative investment funds, we have acquired a unique expertise in asset management.

And because we focus on multi-manager funds, we have developed a strong and disciplined manager selection process that allows us to find and monitor the best Investment Managers if needed.

INTERESTED ABOUT OUR Investment Management?

contact ns partners

INTERESTED ABOUT OUR Investment Management?

contact ns partners
Your browser is not supported. Please use another browser.