By Mott Capital
Published on Jan 28, 2017
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
Hello and welcome to read the markets with Mike and Jane. Hi, Jane. Let’s talk about the stock market, we have had this incredible rally late last year and have stalled out in the second half of December; here we are in January what’s next? It’s the crazy thing, right? Everyone is just waiting to see of course what happens in the land of politics and what starts rolling out. What’s fascinating though is that you had this tremendous run-up in the financials ($XLF), Industrials ($XLI) and basic materials ($XLB), the classic trump trade. It seems like those have completely stalled out or are giving back some, and every other sector is starting to catch up. Biotech (XBI), are up about 6% through this part of the month. Then you start looking around at energy ($XLE) and other areas of the market and they’re all catching up. So what are you going to be looking for this year that will help you determine your investment choices? I am thematic growth investor, so I’m not going to focus on any particular, anything that Trump does or any sort of policy that comes out probably won’t change the way I go about doing anything. Now you mention industrials ($XLI) and financials ($XLF) all had settled down now are there any part of the market they’re still undervalued. When you look when you look at biotech ($XBI) or healthcare ($XLV) just in general I mean it’s it’s being weighed down by this whole drug pricing issue so that in itself is putting is negative, and people just are hesitant to get involved in that part of the market. Ok and finally just the overall business climate I mean it’s a renewed optimism will that help? I think so; I think that makes a huge difference, I think if people are feeling good and people feel as though the economy is going to grow and their jobs are going to do better I think they’re more likely to go and spend. The consumer discretionary ($XLY) has done extremely well since the election. Okay thank you very much, we’ll see what happens and thank you for also joining us.