Value Investing: Tools and Techniques for Intelligent Investment

Chapter 32. The Road to Revulsion and the Creation of Value^[32]

The inexorable march down the road to revulsion is throwing up some truly incredible investment opportunities. BAA-rated corporate bonds are now yielding the highest level since the 1930s – as Ben Graham said, corporate bonds 'should be bought on a depression basis'. Even in aggregate terms, equity markets are offering reasonable value. From a bottom-up perspective, great companies are available at bargain basement prices. Will I be early? Almost certainly yes. But as Jeremy Grantham noted recently, 'If stocks are attractive and you don't buy and they run away, you don't just look like an idiot, you are an idiot.'

• Unprecedented has become the most overused word in existence throughout this period. From our perspective the spike in market volatility is neither unprecedented nor unpredictable. Volatility spikes are not black swans, rather they occur when Mr Market goes from losing his head at the top to losing his nerve at the bottom. However, volatility has a degree of persistence. In the Great Depression volatility exploded and remained exceptionally high until well into the recovery!

• Perhaps the only solace to investors is that the road to revulsion ends in an investment nirvana – unambiguously cheap assets. The latest addition to the portfolio of deep value opportunities comes from fixed-income land. The yields on BAA-rated bonds are pricing an environment akin to the 1930. Senior secured debt is available for 50–70c ...