Are you an investor? Would you describe yourself as a “value investor,” or perhaps “a blue-chip investor” might be a more fitting label? These questions are crucial because understanding and defining your investment philosophy is the first step toward successful investing. In this article, we will explore the philosophy and approach of eclectic value investors. This piece references Vitaliy N. Katsenelson’s newsletter, “The Eclectic Value Investor,” which provides more than just an investment strategy; it offers a unique perspective on investing.
An Eclectic Approach: Investing Without Confinement
Traditional value investing portfolios are often structured according to specific criteria. However, eclectic value investors do not confine themselves to such frameworks. They seek undervalued companies, unconstrained by size or location. Their investment targets span not just the U.S. but also globally, including across developed nations. This broadens the investor’s opportunities and helps in making investment decisions from a wider perspective.
For instance, rather than focusing solely on large U.S. tech companies, they may also consider small to mid-sized European tech firms. This approach values the potential for future growth rather than relying solely on book value or past earnings. Eclectic value investors do not automatically invest in a stock just because it is statistically cheap. Instead, they place importance on accurate valuations by considering the company’s future value.
Balancing Growth and Value: Growth Is Not Opposite to Value
David Einhorn’s statement that growth is not the opposite of value lies at the heart of eclectic value investing philosophy. Moving beyond simple value assessments based on past earnings, it’s essential to evaluate with future growth in mind. Investing in companies with growth potential is also a critical role of a value investor. For example, investing in emerging clean energy companies today could be seen as value investing, reflecting high growth potential.
Assertiveness: Staying True to Your Investment Philosophy
Eclectic value investors adhere to an investment approach that reflects their personality and strengths. This can sometimes appear assertive, but maintaining your investment principles is crucial. With countless options available, choosing companies that align with your strengths is important. For instance, an investor who is weak in retail stocks can reduce risk by excluding them from their portfolio.
Portfolio Construction and a Balanced Approach
When constructing an investment portfolio, eclectic value investors encompass a variety of companies while adhering to their unique criteria. For example, an investor lacking expertise in the pharmaceutical sector might avoid it and instead focus on tech stocks they better understand. This assertive selection can reduce portfolio risk and lead to stable long-term returns.
Ultimately, eclectic value investors recognize their limitations and focus on their strengths when making investment decisions. This is not just a strategy but a process of deeply understanding one’s investment philosophy and making decisions aligned with it.
Reference: Vitaliy N. Katsenelson, “The Eclectic Value Investor”