Value Investing During Worldwide Quantitative Easing

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Value Investing During Worldwide Quantitative Easing

Value Investing During Worldwide Quantitative Easing

Arnold Van Den Berg
Founder of Century Management
Presented to
11th Annual Value Investor Conference
Omaha, Nebraska
May 2, 2014

I would like to thank you for inviting me and Century Management to be part of this wonderful conference. As I was preparing for this program, I thought that sharing my experiences and lessons learned during the early 1970s, when the country had a high rate of inflation, might be of interest to you as a value investor. I believe this is a relevant topic today, because we may experience higher inflation at some point given the Federal Reserve’s— and for that matter most of the world’s—embracement of quantitative easing. Although I’m not predicting it, and I am hoping it does not happen, it is possible we could experience a repeat of the 1970s, and therefore, we need to be prepared. The five points I hope to cover today are listed on Chart 2.

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First, I believe that only three things matter in understanding stock valuations: interest rates, inflation and fun- damentals of the business. Next, it is very important to understand that once inflation begins, it can increase very rapidly. You really have to be on your toes so you can react quickly if inflation begins to occur. In addition, whether we experience inflation or deflation, I believe multiples could come down quickly, which will affect stock valuations. The most important point in this quantitative easing environment is to be flexi