Informed investors create better markets

March 22, 2012 | Last updated on March 22, 2012
2 min read

Market value is created by change, and that change can act as a catalyst in the selection process of portfolio construction, according to John Bosse, CIO and co-president of NWQ Investment Management Company, which sub-advises on the Renaissance Global Value Fund.

“Success in investments is about identifying change,” says Bosse, “Investors need to identify what creates value, [as well as] identify what proves profitability and solves problems.”

For example, companies with hidden assets are developing their businesses; well-informed investors can profit by being aware of the opportunity such firms present and buy into them at the development stage.

Ultimately, he looks at companies that can control their own destinies and that can perform against all odds and expectations.

A company with an underperforming division may be showing signs of a turnaround. Another may be restructuring, with new management willing to devote more capital to research and development.

These actions create positive changes for companies, as well as improvement in profitability. Those enhanced earnings bring to light the company’s true value as an investment.

Recently, technology has emerged as a sector holding tremendous opportunity, with low valuations, strong cash balances and an increasing focus on returning capital to shareholders.

These factors have added a tremendous amount of value to the sector, and have resulted in a surplus of new investments into innovative and changing technologies.

The pharmaceutical industry has also been experiencing increased activity in recent years, and can finally adjust tax rates to a normal level for the first time. Patent expirations and pricing pressures can be taken into account but, notwithstanding those adjustments, the stocks look compelling.

Bosse, while not ignoring macroeconomic issues, prefers to mainly consider those that are currently affecting the market: the decline in China’s growth forecast and the discrepancy between global growth and commodity prices based on their growth margin.

However, he stresses that investors should remember that the market is ever-changing, even while these macroeconomic factors weigh heavily on current decisions and actions.

It is crucial to look at all elements of a company or investment option, especially those elements that may indicate strength, as well as the chance of profitability and success.

Bosse believes that there are “thousands or millions of participants who effectively create markets; the market is reflective of informed opinions.”

Avoiding the market due to volatility will rob investors of the opportunity to buy choice investments; those that will retain their integrity and profitability, and improve their cash flows.

“People are so fearful of the current economy and of aspects like inflation or lower growth,” says Bosse, “The stocks already fully reflect it. We just say: ‘Here’s what the market is doing. We can’t predict it, but we can’t avoid it out of fear’.”