Value After Hours S05 E35: Schroeder's Torres on emerging markets value and Type I and II errors
Jan 1, 2024
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The podcast discusses emerging markets and the potential for deep value investing. They explore the relationship between valuation and growth prospects, focusing on the cheapest quintile of the market. The importance of identifying insiders in the Chinese investment market is emphasized, along with understanding information asymmetries. They explain type one and type two errors in investing and highlight the importance of being proficient in English for investment analysis. They discuss different investing strategies, including transitioning to quality businesses.
Emerging markets offer attractive opportunities for value investing due to inefficiencies and low valuations.
Investors should focus on reducing type one errors to increase the probability of successful investments.
Each country within the emerging markets category is unique, with varying investment opportunities and risks.
Deep dives
Understanding emerging markets and deep value investing
Emerging markets and deep value investing provide a unique opportunity set for investors. Despite the challenges and uncertainties associated with emerging markets, the potential for low valuations and compelling opportunities exists. The lack of competition, less readable accounts, and limited access to reports create inefficiencies in the market, making it an attractive place for value investing. There has been a recent underperformance in emerging markets and value investing, but the next 10 years may present different opportunities. It is important for investors to focus on valuations, conduct thorough research, and understand the risks involved in order to capitalize on these opportunities.
The importance of reducing type one errors in investing
Investors should prioritize reducing type one errors, which involve making bad investments when they are perceived as good. By improving the accuracy in rejecting bad investments, investors can increase their chances of making successful investments. A study using hypothetical numbers showed that even with an 80% accuracy rate in selecting investments, the probability of making a good investment was only 57%. However, by reducing type one errors from 20% to 10%, the probability of successful investments increased to 73%. This highlights the importance of focusing on avoiding bad investments rather than missing out on potentially good ones.
The evolving nature of emerging markets and value investing
Emerging markets and value investing are dynamic and subject to changes in economic and market conditions. The classification of emerging markets is based on criteria such as market depth, liquidity, and development. It is important to recognize that each country within the emerging markets category is unique, with different stages of development and varying investment opportunities. Additionally, factors such as political events, regulations, and market sentiment can significantly impact the performance of investments in emerging markets. Investors should stay informed, conduct thorough research, and understand the specific risks associated with each country or region.
The potential challenges and opportunities in emerging markets
Emerging markets present both challenges and opportunities for investors. While they can be characterized by uncertainties, less readable accounts, and limited access to reports, they also offer the potential for low valuations and compelling opportunities. It is crucial to conduct due diligence and understand the specific risks associated with investing in emerging markets. Additionally, factors such as geopolitical risks, macroeconomic conditions, and regulatory changes can significantly influence investment outcomes. By being selective, price-driven, and focused on long-term value, investors can navigate the complexities of emerging markets and potentially benefit from the opportunities they offer.
The future of value investing in emerging markets
The future of value investing in emerging markets is influenced by various factors, including market dynamics, investor sentiment, and economic trends. While there may be short-term challenges and underperformance, the long-term prospects for value investing in emerging markets remain promising. Additionally, advancements in technology, changing consumer behavior, and improving business environments can create new opportunities for value investors. It is essential for investors to stay informed, adapt to changing market conditions, conduct thorough research, and seek attractive valuations to capitalize on the potential of value investing in emerging markets.
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, and Jake Taylor. See our latest episodes at https://acquirersmultiple.com/podcast
We are live every Tuesday at 1.30pm E / 10.30am P.
About Jake: Jake is a partner at Farnam Street.
Jake's website: http://farnam-street.com/vah
Jake's podcast: https://twitter.com/5_GQs
Jake's Twitter: https://twitter.com/farnamjake1
Jake's book: The Rebel Allocator https://amzn.to/2sgip3l
ABOUT THE PODCAST
Hi, I'm Tobias Carlisle. I launched The Acquirers Podcast to discuss the process of finding undervalued stocks, deep value investing, hedge funds, activism, buyouts, and special situations.
We uncover the tactics and strategies for finding good investments, managing risk, dealing with bad luck, and maximizing success.
SEE LATEST EPISODES
https://acquirersmultiple.com/podcast/
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ABOUT TOBIAS CARLISLE
Tobias Carlisle is the founder of The Acquirer’s Multiple®, and Acquirers Funds®.
He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014) (https://amzn.to/2VwvAGF), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) (https://amzn.to/2SDDxrN), and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016) (https://amzn.to/2SEEjVn). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam.
He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
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