The Price Is Right

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

We live in the information age. We have more information at our fingertips than generations before us could have ever dreamed. It can be overwhelming to try to process all the information available – and that holds true for just about any subject, including the markets and investing.

How in the world can an individual investor hope to read, analyze, calculate, and compare all of the available information about a company and its stock?

Simple. By looking at the price.

A stock’s current price reflects the collective expectations from ALL investors about risk and return for that stock. With more than $400 billion in stock transactions across the globe each day1, the markets combine to form an efficient and effective information-processing machine.

And the information found in market prices steers our MarketPlus Investing® approach.

For your portfolio, SJS selects mutual funds that hold stocks that have more attractive prices compared to similar companies with less attractive prices. Buy low, sell high. While a simple idea, this is an important element of the MarketPlus approach.

When comparing price relative to a standard measure, we can make an educated guess that mutual funds made up of lower-priced stocks may offer an opportunity for a greater return in the future.

For instance, MarketPlus Investing selects mutual funds made up of stocks that are cheaper as opposed to more expensive. These stocks are commonly referred to as “value” as opposed to “growth.” There are many ways to measure for this, but the comparison comes down to price-per-unit – and in this case, we like lower priced stocks per the net assets, or book value, of a company, when compared to those that are higher priced for the same book value.

When holding “total shares issued” constant, MarketPlus Investing again prefers mutual funds that are made up of lower priced stocks – or small caps – compared to higher priced stocks, or large caps.

In other cases, price may be held constant, and managers may compare which stocks have higher profits per unit of price. If profitability persists, investing in mutual funds made up of more of these higher profitability stocks may lead to greater returns in the future, or so the theory goes.

Prices can be volatile, to be sure. And all of our “buy low, sell high” philosophy and management strategy may require multiple years to play out advantageously for an investor.

So risk management and diversification2 have a role to play in designing a portfolio that will stand up to short-term individual preferences and tolerances, but still strive for long-term returns that deliver the market rate-of-return – “plus”!

It’s an ongoing pursuit, and one that we carry out with enthusiasm and rigor day after day, and year after year, for you.

We believe that the scientific and data-driven engine of your investment vehicle is state-of-the-art for this information age. And with our “You Come First” package of service and accessories, it’s hard to put a price on that!

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Sources:

[1] In US dollars. Source: Dimensional Fund Advisors, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.

[2] Diversification does not eliminate the risk of market loss.

Important Disclosure Information:

Past performance does not guarantee future results. MarketPlus Investing models consist of institutional quality mutual funds.

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