Diagnosis is the key
«The actions seem to us, however, much more interesting. We look for those whose share price has been unfairly penalized,» say Álvaro Guzmán de Lázaro and Fernando Bernad, co-directors of Investments at Azvalor.
Last year we achieved the highest return against the index in our more than 26 years as investors: a rise of more than 40% compared to a fall of more than 20% in the S&P500. We did not do it because we were “visionaries” in absolutely nothing, although sometimes that is what we are wrongly accused of. Achieving good profitability in the stock market has to do with “something else” other than being a visionary or a “guru”. It has to do with correctly diagnosing the starting point, choosing assets whose price is cheap, for some temporary reason, and being patient. Those who have had it with us have multiplied their money fourteen times between March 2003 and the end of 2022. And this despite two drops of 50% in between.
Let’s see what the current panorama offers us
Short-term fixed income, with nominal returns of 5% in dollars, is the starting point for those who do not want more risk than that of the American currency. To us it seems like a good parking lot for the liquidity that we are going to need in the next two or three years, but it is not an attractive option to grow our money in the medium term; The reason is that, after discounting inflation, that 5% nominal return becomes very small in real terms.
The actions seem, however, much more interesting to us. We look for those whose contribution has been unfairly penalized. This generally occurs when the short-term prospects are not good, but the business model is robust in the medium and long term. To cross that bridge between a cloudy horizon in the short term and a clear one in the long term, it is essential that the company has little debt; and it is advisable that the management team is aligned with the shareholder, ideally with managers who also have shares at a personal level.
Our recommendation would be to invest in variable income the amounts that a person will not need in the next five years. As the indices are not yet at attractive levels, the best option is to look for value managers who have consistently beaten their benchmark indices over the long term and who invest their money in the same products they offer to their clients. Or… dare to invest yourself, with the criteria mentioned above.
