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Spanish value veterans share stock-picking secrets

Spanish value veterans share stock-picking secrets

Renowned Spanish investors Iván Martín, Francisco Paramés and Pablo Cano sat down for an exclusive panel session on value investing at our specialist fund selector forum, Citywire Madrid 2017.

During the discussion the trio delved into their lengthy histories as investors and discussed current market moods, investment ideas and also their ambitions as independent operators.

Paramés, who returned to the market in September of last year with his new boutique Cobas Asset Management, said he has seen his style evolve from focusing on cheap companies to unearthing attractively priced quality stocks.

He told the audience of professional investors: ‘Buying cheap companies is a thrill but sometimes you fall into value trap traps. Even if you get stocks for free it can turn out that the business is weak and, in the end, you end up eating the investment.’

The comments by Paramés, who adopted the quality focus later in his career, were echoed by his counterpart Iván Martín, who runs boutique group Magallanes.

Discussing his own value investment style, Martí said he follows John Templeton’s axiom of investing in maximum pessimism. ‘When a sector or company is cheap and every cell of your body asks you not to invest, that’s the right time to buy. It works the same way for selling.’

Emotions in check

Both Paramés and the third panellist, Pablo Cano of Bankinter, said value investors need to control their emotions and use these effectively when analysing companies.

Both said they learned the hard way how to harness their weaknesses and keep emotions in check. However, Martín said to a certain extent he believed his personality is predisposed to having the necessary emotional attachment for value investing.

Cano said this emotional detachment is most important at times of crisis, when a contrarian stance is most needed. ‘When mining companies were falling we still held Rio Tinto because of its superior cashflow. The stock was suffering and it was hard for us.

‘But, we checked the numbers again and again and we were reassured about being right in spite of the market. Eventually it paid off, be we needed to have nerves of steel,’ he said.

Mr. Market and new ideas

Martín and Paramés agreed with Cano and said the market should be a tool, not the dictator of your investment decisions.

Paramés said: ‘One should not be carried away by the fluctuations, because only the exceptional can see clearly what is going on in the market. In fact, I’ve only got that clarity right about three or four times in my whole 25 year career.'

The trio also discussed time horizons and what is most appropriate for value investors. This saw them debate how long they would wait before investing in a new business.

Cano said: ‘When dealing with a new company, I should ask for at least a growing order book and for it to be financially robust. Having said that, I often find that they are very difficult to value properly and on those occasion it is safest to pass.’

Martín added: ‘We don’t buy expectation by principle. Instead we prefer to buy consolidated businesses that have survived at least a crisis or a bad cycle.’

The debate was rounded out with a discussion on ETFs and the potential implication for value managers. The three managers agreed that ETFs are an excellent way to uncover ‘closet index’ funds and were happy these products are gaining ground among Spanish investors.

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