The Valentine Perspective – Value is the Marmite of the investment world and proud of it


Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

Valentine’s Day may come but once a year but regular visitors to The Value Perspective will be under no illusions that, for us, every day is Value-Time. Should you need further convincing, however, let’s work our way through a topical article that appeared on the BBC website earlier this week, entitled The mathematical formula for love.

The three key ingredients for love, we are informed are to be proud, proactive and, er provokable. Not so much a mathematical formula then as a short list of things beginning with ‘P’ – and since we are not wholly convinced the last of these is a real word, we will get it out of the way first. “Be provokable,” advises the article. “Speak up if something bothers you.”

US psychologist John Gottman has spent his career studying marital stability, along the way helping to design a mathematical model for judging the survival chances of a marriage. Apparently couples need to guard against “spirals of negativity” and especially something called the “negativity threshold” – that is, “how negative one partner needs to be before provoking a strong reaction in the other”.

So the couples that stand the best chance of staying together in the long run are, perhaps counterintuitively, not the ones who never argue (always assuming such people even exist) but the ones with a low negativity  threshold – those who are not afraid to speak their minds. Rather than internalising any grievance and letting it fester, they raise it, deal with it and move on.

That idea appeals to us here on The Value Perspective. We may all work as equals within a team structure but that does not mean we all have to think alike. There are plenty of small disagreements about the merits of particular stocks but this environment of healthy and proactive debate means nobody feels forced into any decision and everybody knows where they stand on a daily basis.

Working backwards through the list of ‘P’s, as we now appear to be doing, we come to the exhortation: “Be proactive. Go out and get what you want.” Say someone goes to a party by themselves but with no wish to leave it that way, they effectively have two options – either they can sit on the sofa waiting to be approached by people or they can walk around doing the approaching.

It is a numbers game – quite literally, in fact, since two economists have shown, by way of the eponymous ‘Gale Shapley Algorithm’, that our partygoer would be far better off taking the latter option. As the BBC article pragmatically observes: “If you put yourself out there, start at the top of the list, and work your way down, you’ll always end up with the best possible person who'll have you.

“If you sit around and wait for people to talk to you, you’ll end up with the least bad person who approaches you. Regardless of the type of relationship you’re after, it pays to take the initiative.” A similar sort of dynamic exists in the world of investment where, if we wanted to, we could simply invest in every single one of the 650-odd stocks listed on the main UK market.

Such a passive approach does not sit well with us here on The Value Perspective, however. If you want the best portfolio of stocks, we believe you need to start by looking at the cheapest and working your way down (or up) from there. Taking the initiative in this way enables us to assemble the best possible list of stocks that are not only cheap but also carry a level of risk with which we feel comfortable.

The third of the ‘P’s is ‘Be proud. Play up to whatever makes you different.” According to the BBC article, a decade’s worth of statistics from dating website OKCupid indicates that the people who receive the most invitations to go on a date are not the ones who are universally considered the most attractive – perhaps because everyone presumes they are already inundated with offers.

No, the people who prove most popular are those who divide opinion, being rated beautiful by some and by others rather less so. The trick for users of dating websites therefore would appear to be to wear your blemishes and imperfections with pride. Some people will love you all the more for that so there is no point pretending to be something you are not.

Again, this strikes a chord with The Value Perspective. We are not trying to be all things to all people or to attract every penny from every investor (although some money from every investor with the right sort of time horizon would be nice. If you have a horizon of at least three to five years, then value could be a valid strategy for you).

As the BBC article says: “Don't be afraid to put some people off. You’re not trying to appeal to the masses, so don’t make yourself bland.” Value is anything but. It comes warts-and-all and, while some people love the returns it can offer, others hate the short-term volatility that is part and parcel of the strategy. We do not just recognise value is the Marmite of the investment world, we cherish that fact.

Happy Value-Time’s Day.


Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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