Q: In a year driven by AI and mega-cap tech, what do you think markets are overlooking in the undervalued regions and sectors you focus on?
A: The biggest market misconception today is equating a great company with a great investment. For many, price no longer matters. Over half of US equity assets are in passive vehicles that ignore price. The true share is likely higher, as many active managers now mimic indexes.
Another market distortion is career risk. Jean-Marie Eveillard said value investing is painful—pain understood only after long underperformance. It’s hard to stand apart, especially in momentum markets where time compresses, patience disappears and underperformance for even two quarters can threaten your job.
There’s also the belief that volatility equals risk. We disagree. Volatility is opportunity for long-term, unlevered investors. A stock that drops from $10 to $5 before rising to $15 is less risky than one that drifts from $10 to $8. What matters is the risk of permanent loss of purchasing power. When volatile areas like real assets or emerging markets are avoided, prices fall — often making them less risky and more rewarding.
Jeremy Grantham once asked investors to imagine running Stalin’s pension fund: hit 4.5% real returns over 10 years or die. Would you choose overpriced megacaps or AI stocks? We’d look to the overlooked—high-quality companies in emerging markets, small caps and real assets.
Q: How do you define value in today’s distorted global market?
A: Value investing means buying something for less than it’s worth. Central banks have distorted interest rates and money, making valuation harder. Discounted cash flow models, for instance, are nearly useless. Some still argue that value is the sum of discounted cash flows—but what discount rate applies today? How do we project cash flows in an inflationary world? And if a business has no cash flows yet, is it worthless?
Value comes first, cash flows follow. So we focus on fundamentals. Does the business serve a real need? Is there demand? Are there supply constraints? If something is scarce and in demand, it’s valuable.
“The biggest market misconception today is equating a great company with a great investment. For many, price no longer matters.”
Q: Some of your best performers are in complex, controversial markets like China and Russia. What drives your conviction in these regions?
A: We’re never fully comfortable, but we’re compensated for that discomfort. When investors avoid entire sectors or countries for non-economic reasons, it creates opportunity. Geopolitical and regulatory risks are real, but as finance professor Elroy Dimson said, risk means more things can happen than will happen. In markets with wide potential outcomes, like emerging markets, we demand a higher margin of safety and strong upside.
We’re most interested when investors price in only one outcome. In the US, optimism often blinds to downside risks; in pessimistic markets, no positive outcome is imagined. Because the future is uncertain, diversification is essential.
Q: You’ve mentioned finding “value and growth” in misunderstood companies. Can you give an example and how your research uncovers it?
A: We value companies based on what we think they’re worth, using in-depth analysis of the industry, Porter’s 5 Forces, the balance sheet, management, and franchise strength, including growth potential. Sprott Inc., a precious metals asset manager, is a good example. We liked its strong team, brand, balance sheet, and low valuation relative to assets under management. We also saw gold as underpriced, so we modelled assets under management growth alongside rising gold prices.
We uncover these ideas through screening, conferences, research, and experience. Valuing a business isn’t simple—it requires imagining outcomes beyond today’s conditions.
Q: With stretched valuations in areas like tech, where are you finding value now?
A: After years of momentum-driven investing, markets are now deeply imbalanced. The U.S. dominates global indices, while emerging markets—despite driving most global growth and holding half of global GDP—make up just 10% of the MSCI ACWI. Some EM indices haven’t moved since 2007, creating real value opportunities. We’ve been able to buy leading companies at discounts to book value, with low P/Es and EV/sales.
South Korea stands out. Though it looks like a developed market, its EM classification keeps many investors away. Even after a 38% rally since Q1, its index remains below 2007 and 2021 levels, trading at just 1.0x book and 12x earnings. Many Asian conglomerates trade far below sum-of-parts and liquidation value.
“The U.S. dominates global indices, while emerging markets—despite driving most global growth and holding half of global GDP—make up just 10% of the MSCI ACWI.”
Real assets are another overlooked area. Mining is just 1% of global market cap—a historic low. Commodities are cyclical, and the best time to invest is when companies cut capex and shut down mines, as we’re seeing now in platinum and palladium. Both metals are in deficit, and producers like Impala and Valterra could triple from current levels.
Smaller caps offer the biggest discounts. Passive flows favour large caps, and most asset managers ignore small names. In MSCI All Country World Index, no company is under $2 billion in market cap; in our portfolio, 62% is below $10 billion.
The market will eventually shift toward undervalued, diversified portfolios. We think that turn may already be starting.
