Tuesday, October 28, 2008

Seasoned investors search for values

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As we mentioned yesterday in, "Are we too bearish?", today's post focuses on areas of investment that are starting to look attractive to seasoned investors.

Some of the well-regarded market veterans you'll hear from on this topic are: Julian Robertson, Jeremy Grantham, Jim Rogers, and John Paulson.

Whether you're currently bullish or bearish on stocks and other asset markets, we think you'll find some interesting points of views expressed here. Let's jump right in...

A Tiger's Eye View of the Market

Famed Tiger Management founder, Julian Robertson recently joined CNBC to talk about the economy and his view of the markets.

While he offered up a rather dour long-term view of the country's economic prospects, saying the US faces a "doozy of a recession" that could last more than a decade, he also claimed to be currently buying US shares.

Some of the stocks he favors are Microsoft (MSFT), Baidu (BIDU), Apple (AAPL), Mastercard (MA), and Visa (V).

Robertson also spoke of his position in a "curve steepener" trade, a derivative which allows one to speculate on (and hopefully profit from) the difference in yield between two-year Treasury notes and longer-term, ten-year Treasury bonds.

Rogers Seeks Sound Fundamentals

Jim Rogers is not too keen on US shares, given the fundamentals and the level of recent government interventions in the economy and the markets.

However, Rogers said that he recently covered some of his short positions in shares and he continues to buy shares in China and Taiwan. He has also been putting money in the Japanese Yen, the Swiss Franc, and in agricultural commodities.

One of the main points Rogers has been stressing lately is his desire to find assets with what he calls "unimpaired fundamentals".

He notes that we are currently going through a period of forced liquidations. When this stage passes, the assets in which the fundamentals are sound will lead the next bull market. Rogers continues to see commodities meeting this test, arguing that a secular bull market is still intact based on supply and demand fundamentals.

John Paulson: Beting on Finance Turnarounds

Hedge fund manager, John Paulson is doing quite well for his investors. The three main funds managed by his firm, Paulson & Co., are reported to be up between 15 and 25 percent this year. The firm's outperformance comes at a time when hedge funds as a whole are facing their worst losses on record.

Interestingly, Paulson, a man who made a name (and fortune) for himself by shorting subprime-mortgage related securities and banking shares, has recently organized a fund to invest in distressed financial companies. The Paulson Recovery fund is up and running, but its investment team is reported to be sitting tight for now and waiting for the expected bargains to appear.

Grantham on the Danger of Buying Too Soon

And finally, we come to well-known investment manager, Jeremy Grantham.

In a recent interview with Barron's magazine, Grantham said that his firm, GMO, would start to look for "cheap pockets of global equities" which they would begin buying over the next several months. Still, he notes that the danger this time around is in buying too early.

As Grantham said in his recent letter to GMO clients:

"At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so. History warns, though, that new lows are more likely than not."

For a professional investor/money manager such as Grantham, the risk in buying shares at seemingly depressed levels is that shares continue to head lower for a time, becoming more depressed. You might call this danger, "the curse of the value manager".

Do You See Values?

So now that you've heard some ideas from a few well-known investors talking their books, do you find any items of interest in this current market environment?

Are you staying on the sidelines, or are there some areas of value open to you?

How do you view the markets at this time, and have the long ideas quoted above offered any possible insights? We'd love to hear your thoughts.

Related articles and posts:

1. "Risk Management and Hooke's Law" - John Hussman.

2. Jeremy Grantham's 3Q 2008 letter to GMO clients.

3. Baron, Grantham, Arnott spot bargains - Bloomberg.

4. CNBC interview with Whitman, Royce, Eveillard - Can Turtles Fly?