Insights from the Value Equities Investment Committee | PDF

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” –Benjamin Graham

Advances in AI have captured investors’ imaginations and opened a wide gap between the beneficiaries and the rest of the market. The resulting concentration in mega-cap technology businesses has exposed the limitations of how many “passive” indexes are constructed, and it is a reminder of how fluid their risk profiles can be. It also highlights how differently active managers may define fundamental attributes such as quality and value, and how firmly they adhere to their stated philosophy and process. The late stages of extended market cycles test that commitment, and the end of the cycle reveals it.

At Confluence, one of our key tenets is maintaining a consistent risk profile throughout market cycles by adhering to our philosophy and process. That philosophy was adopted at inception in 1994 at our predecessor firm and remains in place today. It has successfully navigated both the internet boom and bust of the late 1990s and early 2000s and the Global Financial Crisis of 2008-09. It rests on understanding and valuing individual businesses, with an emphasis on owning competitively advantaged companies at attractive prices: quality and value.

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