2014 Morningstar Investment Conference

What is cautious value investing?

Jun 18, 2014 @ 12:00 am

Runtime: 1:48

Risk-averse investors want gains, but fear losses even more. Chuck de Lardemelle of IVA Funds has a solution that emphasizes minmizing losses rather than maximizing gains. How much of your clients' portfolio should be allocated to this strategy?

Video Transcript

[MUSIC] Well, cautious value investing is basically taking the downside into account first. So looking for the worst case scenario and what that would mean to our investment if things don't go the way we would like them to go. Where I think it's, perhaps, more distinctions between investing and speculating. When you invest, you expect to get your principal back and then some. When you speculate, you have high probabilities of potential large losses and we try to avoid the situations. Well, it's very important to many of our clients who are already wealthy and want to compound their wealth and be able to sleep at night. It's also very important for a number of investors who may need access their capital at any time. And can not handle the volatility that comes with more speculation and less cautious value investing. Now is the best time to use cautious value investing. Because markets have been manipulated by central bankers for a long time, and valuations are not cheap at all. We are also in a very unique period of financial history. Well, it really depends on your goals, but if you want to protect capital today, cash is absolutely essential. It's an asset class that has a merit, the merit not only of protecting your capital. But also allows you to invest and benefit from drawdowns in, in more difficult markets. And it's very important that you keep some cash on the sidelines given valuations today globally. At IVF funds, we have about 35% in cash at this point. And we believe that's the, the right way to protect our investors' capital. [MUSIC]

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