Wasting Time on Fundamentals
I used to create financial models that would attempt to value companies or their pieces in order to find undervalued investments that could benefit my portfolio in the future. While my focus has shifted to capital preservation and income, analyzing financial statements continues to be important to create these portfolios. However, I have grown increasingly skeptical on the value of fundamentals. It seems as if momentum continues to drive the financial markets in the wake of seemingly unlimited capital and liquidity.
I have always said that markets can remain irrational for extended periods of time so this is not unexpected. Reversion to the mean will always happen as well so I will work on my Strategy going forward by first looking at the macroeconomic factors that will likely cause the next cycle. That will allow me to focus on the sectors that could be well placed for the cycle which will then point me to the companies to evaluate. In the meantime, I will enjoy catching up on interesting financial statements!
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