RYDAF - Being 'Cheap' Doesn't Always Mean Offering Value
2024-04-11 07:30:00 ET
Summary
- This review looks at a number of areas that look compelling because of their valuations, but not so once macro-forces are considered.
- In particular, I view US commercial real estate, Chinese equities, and British equities as potential value traps through 2024.
- This is a reminder that having an attractive valuation in relative terms does not always mean gains are ahead.
Main Thesis/Background
The purpose of this article is to discuss some areas of the equity market that appear like value plays right now because they are "cheap" relative to the broader market. This is a follow-up to a recent review I wrote that covered some areas I was investing in to hedge my large-cap US exposure. However, the distinction here is that while some potential spots of "value" may look interesting, the relative discount one is getting to buy them may not present the value one is truly looking for.
The distinction I am trying to draw here is that just because something is cheap doesn't mean it has value. This is central to "value investing". It isn't as easy as just finding the cheapest sectors or stocks and diving in. It requires more thought - finding assets that are underpriced because they are unjustifiably cheap. By contrast, just buying the cheapest ticker that is cheap for a (or many) good reasons is not likely to result in "alpha"....
Being 'Cheap' Doesn't Always Mean Offering Value