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Dear Investor,

 
Clients often ask us “why don’t you simply buy a broad market index, like the S&P 500, and hold for the long term?” If only investing was as simple as that. The truth is that, as value investors, we only look to buy assets which are “cheap”; in essence whose prices most reflect their fundamental economic value, relative to similar assets. From this perspective, we believe that the S&P 500 index, as well as many developed market indexes in general, are overvalued and are due for a sell-off. We have detailed our thesis in a 6 page analysis report titled “Why the S&P 500 is overvalued”.
Another reason we do not concentrate investment into a single index is the fact that investors would have to be able to tolerate enormous short-term declines in value. For example, from March 2000 – March 2003, the value of the S&P 500 fell by 83%. From October ’07 – March ’09 it fell in value by 30%. Though it eventually recovered, from a behavioral perspective, I don’t think I’ve met a single person who would not want to sell all holdings of an investment after a decline of 30%+, never mind 83%, purely from fear and anxiety, thus crystalizing a large loss.
Where do investors park money in these situations? Look towards assets that are not correlated with conventional equity markets, or whose prices will increase as stock prices decline. Examples are: hedge funds, like the Vallea Global Macro Fund, invoice financing & exposure to the VIX index, which would increase in value as stocks decline and fear is on the rise. This can be done through the iPath S&P 500 VIX mid-term futures ETN. Gold is also a fantastic option.
Kindly let us know if there is any way we can assist you, and feel free to take a look at our latest service offerings & blogs below.

Happy investing,
Sven Roering
Managing partner
+84 8 3825 6369

svenroering@tpim.co

Tenzing Pacific Investment Management

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