BALANSTONE’s investment philosophy is to invest in the growth of the intrinsic value of equities. We think this is the approach for a long term perspective.
View on Market
A financial market is a place where the beauty contest is the rule. Price is not value. Price is a point where both sides of the herds of a transaction meet at a point in time. It is just like a musical chair. What matters is not what you are getting, but you have to predict and forecast others, a part of the market as their aggregate.
Unfortunately, unlike private asset that does not have mark-to-market pricing, public equity’s high liquidity & pricing transparency have forced it to get monitored by a short time horizon. It even enhanced short-term herding minds, and long term money left and moved to private assets. Due to this trend, public investment has confined itself to be an investment of market factor in large part and developed further into fragmented rule-based investment vehicles of ETFs.
That being said, the private market is not scalable quickly. Due to massive inflow, dry powder at PEs are getting higher structurally, and the cap rate has declined. Ironically, this money flow-led pricing increase led to a better performance of private assets with apparent idiosyncratic character. While the pricing mechanism is quite different (market pricing vs. judgemental pricing service), the core principle of growth of enterprise value is the same.
What We Do
Thus we think, in the public market, the very basic of focusing on intrinsic value and growth – just like the private market does – works best in the long run despite short term noises. From our experiences, we believe that is the case, although, in the short run, it may look the other way around.
We have a fortunate advantage to remain as a minority, not engaging in herding behavior and acknowledging the structural and behavioral bias of the market, unlike sizeable institutional portfolio managers, getting influenced by the market (i.e., all other fund managers) and thinking strategically in that way.
Additionally, the considerable progress of data science has made it possible to conduct analysis that was not ever able to get done. On the other hand, although we believe the best number of investment professionals to manage global equity is around five, research and investment decision efficiency is a crucial challenge. It is rare to bridge this gap as two vertical capabilities seem far apart. At a large firm, an organizational structure is an obstacle to combine them.
We have long thought that advanced data science tools can help overcome this challenge. We have spent an initial few years in developing it and now integrate it with our judgment.
We believe that the capitalist economy works to increase the wealth of society and to benefit all economic entities, leading to the achievement of “growth.” The investment target that matches our philosophical investment criteria has a firm foundation in business, as well as sustainable and consistent growth, and build long term life-time value of customers. That will increase value over time for minority shareholders.
That is to say, a robust economic entity that can advance capitalism meets our investment criteria.