Constructive Engagement | Unique Opportunities | Intensive Research
Investing independently of consensus.
Equitable Investors is a specialist investment manager seeking opportunities across micro cap, small cap, emerging companies, unlisted and other special situations.
We leverage in-depth research, deep networks and fundamental analysis but we are unique among our peers for our proven ability to engage constructively with investee companies to maximise shareholder value. We “roll our sleeves up” and get involved and our experience is that in doing so we can achieve superior returns over the medium-to-long term.
Our Small Talk update goes out to Equitable Investors' wholesale clients weekly.
"Cost of Capital v. Distant Cashflow Projections "
Our May 2021 update for Equitable Investors Dragonfly Fund includes commentary on inflation and the cost of capital... We included in the May 2021 update a chart published by Sanford Bernstein that we've used in the part when discussing with clients the impact of higher inflation and higher interest rates. The chart (Figure 1 below) demonstrated how variation in the Weighted Average Cost of Capital (WACC) used to value a company's future cash flows has a material impact on the present value of high growth companies. That's because most of the value priced in by investors in these companies is based on cashflows not expected to be delivered for many years....
"The probability of a stock going up or down"
"What is the probability of a stock's price going up vs going down at any given time?"
The answer depends on how you are looking at this:
(i) if you are looking purely at the very next second with no additional information, there are three ways the stock could go: up, down or flat (no change).
(ii) if you are looking at buying a stock at any given point in time but then holding it for a period of time, historical data starts to indicate that the odds favour up over down.
A while back we ran some stats on the domestic equities market (Australia). We found that 64% of industrial stocks (a broad category that excludes resources plays but includes most other sectors including tech and financials, achieved a positive return in the five years to May 20, 2018. The first chart accompanying this text sets out the distribution of returns.
But that is just one time period in time. Using US data, alpha architect ran a more detailed study that you can read here.
If you look at market returns rather than individual stock returns, famed academics Fama and French have written a paper, “Long-Horizon Returns” and they found the distribution of continuously compounded (CC) returns for US equities “are close to, but not quite normal for return horizons of ten years or more”. The accompanying table, from that paper, shows CC returns have a positive mean over all periods from one month to 30 years.
And the next chart is also taken from that Fama and French paper, plotting out monthly US equity market returns.
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