It was another typical week in the markets. Economic soundings ranged from modestly optimistic in Europe and China to discouraging in the U.S., where retail sales barely grew last month, inventories rose and consumer sentiment fell to its lowest level since April.
Yet stocks and bonds climbed, as fears over Syria faded and investors decided the latest evidence of a stumbling American recovery would persuade the Federal Reserve to delay or reduce any tapering plans. The Dow posted its strongest week since January and the S&P 500 put up its best numbers in two months.
It all makes for tougher conditions for true value investors, who cling doggedly to the old verities in the face of easily influenced and increasingly surreal markets. These are the people who turn down the volume on their TV feeds when the talking heads start blathering about what the Fed will or won't do, or whether the Russians have trumped the Americans in the Middle East. Soon the talk will get really scary, as the blustering "commentariat" turns its attention to another looming debt ceiling crisis in Washington and the spectre of an unthinkable U.S. default.
Charles Brandes has been successfully ignoring most of the economic and political noise for decades.
"We need to get back to really basic, fundamental long-term investing. Which means that you don't pay that close attention to what everyone else is paying close attention to," says Mr. Brandes, who started his own value shop back in 1974 and counts the legendary Ben Graham, the father of the value craft, as his mentor.
Investors should think of themselves as owners of the business, he says, rather than just temporary holders of the stock. Focusing on the flux of current events leads many people to worry too much about things like market volatility, sudden downturns or negative reactions to economic or geopolitical developments.
His advice? Stop worrying about what Ben Bernanke is up to and pay closer attention to what managers are doing to strengthen corporate balance sheets and exploit growth opportunities.
Right now, his eponymous San Diego-based investment firm (re-branded in Canada as Bridgehouse Asset Managers) is finding good value in beaten-up emerging markets as well as in the developed markets of Europe.
"Emerging markets are nicely down this year. So for long-term basic bottom-up thinkers, they are very attractive," given their longer-term growth potential, Mr. Brandes says. "If you think in terms of five to 10 years, we've got a tremendous opportunity there. Most investors are way under-allocated to emerging market companies. … Most investors in Canada don't have any."
Like other European equity trawlers, Brandes managers have accumulated positions in some of the usual global suspects that happen to be based across the pond. But there are also stakes in such large, local market players as France's GDF Suez (gas-fired power plants) and Telecom Italia (an infrastructure play).
Despite the run-up in U.S. stock prices, Mr. Brandes is still finding worthy targets there as well, notably in banking and technology. Microsoft and hard-drive maker Western Digital rank among the top 10 holdings in the firm's well-diversified global portfolio.
Value investing, most famously espoused by the likes of Warren Buffett, another Graham disciple, can take different guises. But its leading practitioners tend to be battle-tested veterans who have lived through their share of bubbles and busts. Their discipline and intense focus on long-term stock performance enable them to soldier on when everything comes crashing down, or when short-term speculators drive equities far beyond their perceived value.
"There are periods of time when value doesn't work," Mr. Brandes acknowledges, noting that considerable patience is required "to live through some of these periods where the quotations in the market are below what your costs are [for the assets]. People get concerned about that. We only get concerned about the fundamental value of the company over a long period of time."
He has been counselling financial advisers for years that investing is not the same as speculating, where people jump in and out of stocks just to keep up with the crowd.
"It's a bottom-up process of owning the actual business and thinking over a longer period of time about how that business will create wealth for both the economy and you as an owner," Mr. Brandes says. "That's a basic principle that sometimes we get away from." Then he corrects himself, changing "sometimes" to "always."