Thinking About Investment Catalysts

The co/authors Arvind Mallik and Jonathon Fite are the Managing Partners of KMF Investments, a Texas-based pure pay-for-performance hedge fund. Jonathon is also an adjunct professor with the College of Business at the University of North Texas.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” —Benjamin Graham

Consuming financial news has become a game of juggling conflicting spin. One media outlet throws up the headline “Apple reports record quarter” while another simultaneously reports “Shares of Apple are tumbling after iPhone disappointment”. Which is it – “An industrial recession is engulfing America”, or “US auto sales set record”? It is no wonder that the whiplash of conflicting news feeds massive volatility in stock markets.

How can investors achieve clarity amid all this chaos and confusion?

Value investing provides a time-tested remedy. Always remember that stocks are not just ticker symbols floating on a TV screen. Shares represent ownership interests in real companies, real businesses. By studying a company’s assets, profits, and growth prospects, we can calculate the true intrinsic value of the stock. When news-driven volatility creates a big gap between a stock’s price and its intrinsic value, value investors exploit the opportunity, and do not succumb to fear (for less-active investors, a dollar-cost averaging strategy can create a similar benefit).

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