Page 22 - DIY Investor Magazine | Issue 40

THINKING DIFFERENTLY
April 2024 22
DIY Investor Magazine ·
Financial markets can be inefficient in the short term, driving share prices away from their true fundamental value. This can create interesting long-term opportunities for disciplined “value” investors that are prepared to challenge consensus beliefs. Here, we take a look at The Merchants Trust, which is managed by Simon
Gergel who has been successfully deploying such an approach for more than 30 years...
3 KEY TAKE-ALWAYS
1. Markets are inefficient in the short term but tend to find true fundamental value in the end - this can create opportunities for disciplined investors.
2. Simon Gergel, manager of The Merchants Trust, looks
to capture these opportunities by finding good quality businesses and investing in the when they are out of favour.
3. This requires a rigorous approach and an independent mindset, but it does ultimately provide the opportunity for investors to enjoy good long-term returns.
By maintaining a disciplined, independent mindset and challenging consensus beliefs, the value investor can take
a contrarian view to identify situations where share prices have become detached from fundamentals and invest in undervalued assets that have the potential to shine brightly in the long run.
Simon Gergel, portfolio manager of The Merchants Trust, has been successfully deploying a value investment approach for more than 30 years. His aim is to identify good quality businesses and invest in them when they are out of favour.
Their temporary lack of popularity tends to be reflected in lower share prices and valuations, as Simon explains:
“IN THE SHORT RUN, THE MARKET IS A VOTING MACHINE, BUT
“When there’s an issue affecting sentiment, it can provide a
IN THE LONG RUN, IT IS A WEIGHING MACHINE.”
great opportunity to buy good companies cheaply. If investors are nervous about a business, industry, or even the economy
THE VALUE INVESTOR – EXPLORING THE BENEFITS OF
more broadly, it will tend to mean lower share prices. As long BEING PREPARED TO THINK DIFFERENTLY
as we can become confident the issues that are affecting sentiment are temporary rather than permanent, this can
“In the short run, the market is a voting machine, but in the long
represent a really attractive entry point.”
run, it is a weighing machine.”
This timeless quote from Ben Graham, one of the greatest investors of the 20th century, captures the essence of value investing, a strategy that rationally questions prevailing market sentiment.
The quote implies that the influence of emotion can make financial markets inefficient in the short term, driving share prices away from their true fundamental value1.
‘SUCCESSFUL VALUE INVESTING DEMANDS A LONG-TERM INVESTMENT HORIZON’
A LONG-TERM MINDSET
As Ben Graham’s quote suggests, successful value investing demands a long-term investment horizon.