Brief excerpt from CFA Institute on The Value Proposition followed by full book description
Reviewed by Bruce Grantier, CFA
The Value Proposition: Sionna’s Common Sense Path to Investment Success, by well-known Canadian practitioner Kim Shannon, CFA, covers a wide range of aspects of value investing. It constitutes a valuable education in this field, addressing numerous topics that are either seldom discussed or usually touched on only briefly. The book is an informative guide for those striving to gain a deeper understanding of and improve their skills in value investing.
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Shannon has more than 25 years of experience as a value investor and is currently chief investment officer of the firm she founded in 2002, Sionna Investment Managers. She has been very active in the investment community, often speaking at conferences, and has served as a board member and as president of CFA Society Toronto. Although she focuses largely on the Canadian market, which is fairly concentrated and resource oriented, the concepts she discusses apply to all value stocks and all market.
The book’s topics range across the spectrum of value investing, and three of its major themes are dealt with only lightly in most other value investing books and rarely from the viewpoint of an experienced practitioner.
The first theme pertains to the ways in which a value manager shifts gears as market conditions change. No single approach is best for bull markets, bear markets, and sideways markets. Market cycles may include bubbles and bursts, as well as sector-specific bull markets, particularly in technology, commodities, and gold. During prolonged upturns, value managers may sit on the sidelines for long periods, underperforming and having their strategies questioned by their clients. They survive these ordeals because they believe that value eventually comes to the fore. Shannon examines how different management styles fare in different types of markets and what their strengths and weaknesses are in comparison to value. Specific style-related topics include speculation versus investing, top down, sector rotation, technical analysis, story or trend anticipation, growth, growth at a reasonable price, and momentum.
Among the most interesting and less frequently discussed aspects of the adaptation-to-conditions theme is a discussion of sideways markets. This phenomenon occurs surprisingly frequently, as detailed by Vitaly Katsenelson in Active Value Investing: Making Money in Range-Bound Markets: Making Money in Range-Bound Markets.
Full article can be found here, book description below
If you’re looking for advice on how to make a fast buck and get an adrenalin high from investing, this book is not for you. If you’re looking to build wealth over time, Kim Shannon covers a common sense approach that Sionna Investment Managers uses to manage money on behalf of its clients.
Despite proven success, value investing struggles for respect, particularly during bubbles and declines when investors take cues from headlines instead of reason and experience. Shannon discusses the psychological impulses underlying mispriced stocks that become unmoored from their intrinsic value. Citing examples, she endorses understanding investment psychology and using relative value to buy illogically discounted shares.
Suited for investors at all levels, The Value Proposition reveals Sionna’s quantitative and qualitative processes and a “Sherlock Holmes” orientation to reading financial statements and assessing a company’s management. After 30 successful years in the hard knocks investment world, Shannon views herself fortunate to have found her calling managing money for institutions and individuals.
She describes the unlikely journey that led to an industry that has only recently attracted women. Her account of influential mentors, the merits of staying independent and her creation of a strong Sionna culture make for an engaging and informative read.