During the month of May, participants of EADA’s International Master in Finance had the option to attend the Value Investing course taught by visiting lecturer Alirio Sendrea, CFA. The course was one of 12 electives in three areas (corporate finance, investment banking and FinTech) offered during the strategic specialisations in the third trimester of the Finance programme.
Mr Sendrea, CFA, is the Head of Research at Invexcel Patrimonio, a multi‐family office based in Madrid, Spain. The aim of his team is to use a thorough fundamental research method to find attractive long‐term investment opportunities in European equities, where many investors feel discomfort. He also engages in valuation and financial analysis projects in private markets. Mr Sendrea has more than 17 years of experience in Financial Analysis, Valuations, Investment Advisory, Auditing, Restructuring and Treasury, working with entrepreneurial families and leading global companies such as Barclays, KPMG, The Procter & Gamble Company and Deloitte.
What is most rewarding about value investing? And the most challenging?
Value Investing is a discipline that recognises that value and price are two different concepts. Value investors then try to exploit that difference. The most rewarding side is that you sleep far better when you take investment decisions based on a thorough analysis of fundamentals, that helps to fulfil the fiduciary duty we have with our clients as investment professionals. The challenge is that it often takes time for an equity story to develop, and in periods of market exuberance you need a strong stomach to swim against the tide.
What attracted you to the field of value investing?
In a single word: rationality. The first investing book I read was The Intelligent Investor by Ben Graham, the father of Value Investing. It captured me with the allegory to “Mr. Market”, a manic-depressive guy who repeatedly places sell or buy orders depending on its very pessimistic or highly optimistic mood of the day. Look at the charts lately, Mr. Market is fully alive!
What skills and/or qualities are important for a value investor to have?
The most obvious is a set of strong analytical skills. But a value investor needs to go far beyond that, needing an enhanced thinking process, seeing business topics from different angles, being constantly hungry for learning, and thinking prospectively. As Walter Gretzky, the famous hockey player said: “skate to where the puck is going, not where it has been”. On top of that, a value investor needs a strong mindset to deliver, conviction to go against the trend, patience to see fundamentals develop, and humility to accept and learn form mistakes.
How do you keep up in a market that is reacting to good and bad news?
I don’t understand those who see volatility as a risk; if they need stable prices, why on earth would they invest in equities? But this serves us up great investment opportunities, by which I mean the chance to buy low and sell high. I think the market is highly efficient in the long term, but it’s a poor short term value appraiser. It is emotions and not fundamentals that drive daily quote reactions.
As investors become more savvy, do you think we will see an increase or a decrease in valuation gaps in the upcoming years?
This is a really good question. I’ve been contemplating and discussing with my colleagues in Invexcel about what’s been happening in the financial markets lately, and also what happened in previous centuries! There’s no doubt that information is much more accessible than in the past; data is now a commodity. Furthermore, technology has made data analysis easier and cheaper. However, the human component is still there; our emotions continue leading us to overreaction and other inefficiencies that we still see in the market. Additionally, there are technical factors that provide opportunities in certain pockets, like the raise of passive investing to name one, which up to certain point, is some sort of dummy money that invests in what goes up and sells what goes down. We no longer live in the days of Ben Graham, that’s true, but there are still opportunities for those eager to look beyond the fashion; and I believe there will continue to be so in the future, unless humans, including the algorithms they design, stop behaving like humans!