All good here, page-6

"But I do believe that a riskier asset need not be a riskier investment, if it is priced correctly and the risk is mitigated via sensibly incorporation in a portfolio. That is, it's all about minimising the risk when the expected return is sufficiently attractive. Or to invert, a safe asset may not be a safe investment, if it is over priced."

@MarsC,

Your observation about the market's bi-polar attitude to valuing "good" businesses, on the one hand (at unprecedented premium multiples), and "bad" businesses on the other (at steeply discounted multiples), is one I share.

I can't recall ever witnessing the sort of valuation multiple dispersion we are seeing today.

I suspect the reason high-quality businesses are being, as you say, bid up, has to do with the low cost of funding, with interest rates being where they are (and falling and, without my being any economist of note, unlikely to rise meaningfully any time soon). And these high-quality businesses generally having long-duration growth profiles, And lowering the DCF discount rate tends to boost (theoretically, anyway) quite dramatically the present value of future cash flow streams, especially ones that grow over time.

So I can understand that particular behvioural dynamic (I might not like it, or even agree with it, but I can, at least, understand it).

But what I can't understand why there is such a valuation chasm band between the pristine and the rubbish (and even the stuff in the middle of pristine and rubbish).


"Doing nothing, or being out of the market, even for extended periods, is certainly something that I sympathise with."

Here's where I differ somewhat.

Being "out of the market" sits unwell with me, because it implies that I am able to wade in on the lows (and, hence, sell the highs), which I know I can't.

So I tend, in times like these, to end up sniffing through the garbage for stuff that no one wants.

Trouble is, that is not very often an edifying experience.

(For example, this week I've been modelling ALQ (the old Campbell Brothers) in which I had a happy investing experience a decade or so ago. Highly cash-generative business but, in terms of cogent, shareholder value astute capital allocation....sheesh... it'll put hair on your teeth!)


@Warrigals,

"Some of the companies that I have owned through several of these cycles and have achieved greater heights are AMC, CSL, DLX, IVC, REH, SEK, SOL."

What a great selection of businesses you own.

Whenever I see the letters A, M, and C together in that order, the vein on the side of my head starts throbbing. For, after hating the stock for many many years as a mere capital hog that never earned its cost of funds, I completely missed the transformation of the domestic story and the capital discipline and the prudent global expansion foray. It is the one that got away from me.

IVC, similarly, but not because I don't like death (I love it....well, not it per se, but investing in its derivative); I have just spent most of the past few years waiting for it to cheapen sufficiently for me to buy. In the meantime, the intrinsic value of the business just keeps rising away from me.