ARGA’s investment philosophy reflects both our extensive experience and academic studies. Both identify impairments to investment decisions such as emotion and business risk. By systematically eliminating such impairments, investment decisions improve.
Investment opportunities exist in all environments.
ARGA believes investor sentiment, company events and economic uncertainty create recurring investment opportunities. Each can disproportionately impact a company’s market valuation. However, fundamental research often shows such factors to be transitory in nature. As conditions normalize over time, valuations recover.
Investing in unpopular companies can be profitable.
ARGA frequently invests in out-of-favor companies and industries – typically those facing operating or macroeconomic issues such as cyclical slowdown. Since we buy prior to improvement, stocks are likely to be trading at a significant discount to intrinsic valuation. As issues get resolved, stocks return to intrinsic valuation. The long-term benefits of this investment philosophy have been documented by empirical studies.
Valuation drives investment decisions.
ARGA defines intrinsic valuation as a company’s long-term earnings power and dividend-paying capability. The difference between intrinsic valuation and market valuation (stock price) is the potential return. To manage risk, intrinsic valuation must be assessed using a base case scenario as well as a stress case scenario.
Market indices do not impact investment decisions.
ARGA does not consider market indices in making investment decisions. Long-term, results are maximized by investing in the most attractively-valued businesses regardless of index weights. Accordingly, ARGA has periods when our strategy results vary widely from indices.
Investments are about companies.
ARGA’s focus is company-specific. Our research professionals are business analysts, not stock pickers. Their role is to understand companies’ long-term fundamentals and normalized earning power – not to analyze investor sentiment. By focusing on the valuation of individual companies, we remove emotion and bias from investment decisions.