Oldfield Partners’ philosophy is to buy lowly-valued, essentially sound companies below their intrinsic worth with conviction and patience in equal measure
In constructing portfolios, we ignore index weightings and start with a blank sheet of paper, seeking individual stock ideas to create focussed yet diversified portfolios
We believe that buying out-of-favour stocks at healthy discounts to their intrinsic worth will deliver a superior return above inflation, and the wider market, over the long run
Our clear value DNA does not allow ’style drift’ as we apply our approach rigorously through market cycles
Classic value investing with high conviction
We are classic contrarian value investors. Value investing is one of the oldest approaches to investing in equities and can trace its roots back nearly 100 years to investing legends such as Benjamin Graham, Sir John Templeton and Warren Buffett.
Inefficiencies in markets today are fuelled by emotional, short-term thinking, investor 'herd instinct' and ‘index hugging’. Together these inefficiencies generate a lot of noise, replayed through the media, which can distract investors without a rigorous and dispassionate view of underlying value.
The firm is small, private and quiet. We focus on our own fundamental research of individual companies generated by our experienced and collegiate team.
What does it take to be a value investor?
Discipline. Patience. We focus on valuations, not predictions. Facts not forecasts. We consider companies whose share prices have gone down as prima facie more interesting, and we then seek to establish whether the fall in the share price has lowered the valuation. Classic value investing is much more than just buying statistically cheap companies. To do so without fully appraising the fundamentals significantly increases the chances of falling into value traps.
Instead, we seek bargains: companies trading at low valuations both in absolute terms and relative to their own history and with a significant discount to their ‘intrinsic worth’. In doing so we are unashamedly contrarian to the consensus (market) view of that company. We don’t believe in the term “value stocks”, we believe that valuations for companies change over time, as the excesses of greed and fear sweep through various parts of the market, offering opportunities to buy bargains in different areas at different times.
A crucial element of the investment case is that a palpable sense of negative sentiment exists towards the company. The low valuation multiple, attractive discount to intrinsic value and low market expectations combine to create a ‘margin of safety’.
Identifying intrinsic worth
Intrinsic worth is our assessment of the underlying value of a business based on a dispassionate, risk-assessed view of earnings, book value and free cash flow amongst other considerations.
We believe that markets tend to extrapolate unduly so that expectations reflected in share prices become too low after a run of bad news and too high after a run of good news. This tendency is magnified by the prevalence of momentum investing. We buy companies when prices are depressed and well below our assessment of intrinsic worth and sell them when they reach it, before they become too expensive.
We are contrarian in nature, buying when there is a general sense of fear or unease around the company in question. We believe that valuation discipline and patience with a longer-term view offer us an advantage: they allow us to buy shares when they are lowly valued bargains.
Margin of safety
First coined by Benjamin Graham and David Dodd in 1934, it is the gap (or discount) between the company’s stock market capitalisation (or share price per share) and the actual assessed value of the company (intrinsic worth).