Distillate Capital 3Q19 Update

We provide an update of strategy performance and portfolio positioning.  We also look at equity market valuations in a historical context, relative to both underlying fundamentals and the valuations of other asset classes.  Finally, we touch on “factor” investing and discuss valuation risks we see among popular Low Volatility strategies, as well as definitional problems with traditional labels like Quality and Value.

Value Investing in a Capital-Light World

The composition of the economy and stock market has shifted from physical assets to intellectual ones. This change has significant implications for traditional valuation metrics, requiring a new approach.

Distillate Capital 2Q19 Update

We provide an update of strategy performance and the market environment, discuss the dangers of elevated debt levels, and describe the unintended risks investors might be taking as they seek safety in certain stocks with with low price volatility but increasing levels of debt.

Distillate Capital 1Q19 Update

We provide an update of strategy performance so far in 2019, portfolio changes and positioning, as well as our thoughts on the mismeasurement of “Value” as it is commonly discussed and what we believe to be underappreciated risks embedded in low beta stocks.

Buffett Abandons Book Value

We relate Warren Buffett’s recent comments on book value to our own investment process and make the case that investors buying a “value” index might, unintentionally, simply be taking on exposure to asset-intensive sectors rather than truly under-priced securities.

2018 Year-End Letter to Investors

Our annual review of performance, recent changes to our portfolio, and comments on the outlook for equities in the years ahead.

Long-Term Investing: The Costs of Myopic Thinking

Adhering to long investment time horizons is easily said but more difficult to do. Emotions and behavioral biases work to erode the otherwise attractive returns offered by equity markets when evaluated over multi-year periods. Properly framing comparisons between equities and other assets—like bonds—can help investors avoid the risk of falling short of return objectives.

FAANG Valuations: A Mismatch of Old Metrics and New Companies

The group of stocks known as the FAANGs (Facebook, Apple, Amazon, Netflix, and Alphabet) have garnered significant attention from investors and market pundits—often painted as a homogeneous, overvalued set of stocks.  However, we see the FAANGs providing a good example of the shortcomings of traditional valuation metrics.  Using our distilled cash yield methodology, a more nuanced view of FAANG valuation emerges.

Risk: Fundamentals Over Price Volatility

Investors should consider investment risk as defined by an investment’s fundamental stability, level of indebtedness, and valuation, rather than simply its short-term price volatility.

Behavioral Biases: Exploiting Systematic Mispricings

Deeply rooted behavioral biases can offer exploitable opportunities for a thoughtfully designed, systematic investment approach.