While sifting through the latest batch of regular reports in my email inbox, I stumbled upon an update that managed to stand out.
Here is a section:
I perceive there to be two types of investors: the biologist and the physician.
The physicians are more numerous. They have been taught to believe in universal laws, precise measurements and mathematical modelling. The biologist understands investing to be more complex, involving observation (qualitative methods) as well as data, understanding that the rules of the game evolve.
In contrast to the physicist who has a static view, the biologist understands and embraces change. Whereas the biologist has tenure, the physicist is often only right once.
European stocks have significantly under-performed US assets in recent years. However, while European assets have underperformed, this is not by itself a good reason to buy them. 493 stocks in the S&P500 have significantly underperformed the Magnificent 7.
It is among these 493 stocks that we see the best opportunities in US equities. The catalyst for this is not only the valuation difference but President’s Trump’s economic agenda will favor them and not the Magnificent 7 Mega-Caps.
This time of year is nearly always filled with siren calls from fund managers arguing for mean reversion in performance. “It’s time for my dogs to bark”, announces the frustrated physicist every January. His confidence in his measurement of value unbounded, when his physics fails, his investment process morphs into an even more dismal science, based on cursed bad luck and “Buggin’s Turn”.
The biologist on the other hand will first ask how the investment climate is changing and likely to change further for better or worse. Crises can indeed inspire resolution and some may think Europe’s crisis will be a catalyst for positive policy change yet since its mainstream political parties remain clueless about the causes of the malaise, never mind having the backbone to effect change, we would contend that no such solution will be easily forthcoming without new political parties offering a complete rethink.
Whereas Trump promises further business deregulation, smaller government, lower taxes and cheap and reliable energy, in an act of economic euthanasia, policies in Europe and the UK continue to advocate the exact opposite, its political class doubling down on failure.