When you invest with us, you become a part-owner of the businesses in our portfolio.
At Allan Gray, we focus on investing in businesses rather than trading in shares. When we select companies for our portfolios, we try to get a deep understanding of how a business operates rather than guessing how the share price will move next week or next month.
Our long-term approach means that we think like business owners and as a result, our clients become business owners. This is a very different mentality from trading in and out of stocks trying to make a quick profit.
Company valuations are our bread and butter
The sharemarket is a very efficient machine which usually sets the price of shares at a level that reflects the future prospects of the company.
However, we believe pricing mistakes can sometimes occur when short-term sentiment overrides longer-term company prospects. In order to take advantage of these situations, we must have a clear idea of what the long-term value of a company is.
Our valuation process relies on a detailed analysis of the company’s business model, operating divisions, competitive position, industry dynamics and management capability. We want to determine exactly how and why the company is able to make money from its operations.
Our valuations are based on long-term data and trends
We always look at the financial statements of the company and its competitors, going back over several decades if possible. We aim to determine the normal levels of profitability in the industry over long periods of time. We also assess how sustainable we think the company’s operations and financial returns will be in the future.
Many of the shares that we select for our portfolios are out of favour with the investment community because of temporary difficulties in their operating environment. By assessing these longer-term financial metrics, we have an important historical context against which to interpret any adverse developments.
Watch out – valuation can be an inexact science!
Fund managers use many different tools to estimate valuation. At Allan Gray, we normally estimate a company’s value by using several approaches because the importance of each one can vary between companies and industry sectors. We also keep in mind that financial spreadsheet models can be very sensitive to small changes in inputs such as long-term growth rates and discount rates.
A margin of safety is the investor’s lifeboat
Since valuation can be an inexact science, we insist on a margin of safety between the price we pay for the share and our estimate of the long-term value of that share. This margin of safety approach enables us to reduce the chance of a permanent loss of capital.
Share
Equity Trustees Limited ABN 46 004 031 298, AFSL No. 240975 is the issuer of units in the Allan Gray Australia Balanced Fund ARSN 615 145 974, Allan Gray Australia Equity Fund ARSN 117 746 666 and Allan Gray Australia Stable Fund, ARSN 149 681 774 (Allan Gray Funds) and units in the Orbis Global Equity Fund (Australia registered) ARSN 147 222 535, Orbis Global Equity LE Fund (Australia registered) ARSN 613 753 030 and Orbis Global Balanced Fund (Australia registered) ARSN 615 545 170 (Orbis Funds). Allan Gray Australia Pty Limited ABN 48 112 316 168, AFSL No. 298487 is the investment manager of the Allan Gray Funds.
Past performance is not a reliable indicator of future performance. There are risks involved with investing and the value of your investments may fall as well as rise. This represents Allan Gray Australia Pty Limited and Orbis Investment Advisory Pty Limited’s view at a point in time and may provide reasoning or rationale on why we bought or sold a particular security for the Allan Gray or Orbis Funds or our clients. We may take the opposite view/position from that stated, as our view may change. If this article is authored by Orbis, it does not prohibit the Orbis Funds from dealing in the securities before or after this article is published. This article constitutes general advice or information only and not personal financial product, tax, legal, or investment advice. It does not take into account the specific investment objectives, financial situation or individual needs of any particular person and may not be appropriate for you. We have tried to ensure that the information here is accurate in all material respects, but cannot guarantee that it is.
You should consider the relevant funds’ Product Disclosure Statement (PDS) or Information Memorandum (IM), as applicable, before acquiring, holding or disposing units in the Allan Gray or Orbis Funds. The PDS or IM can be obtained from
www.orbis.com.au and www.allangray.com.au.
Target Market Determinations (TMDs) for the Allan Gray products can be found at
allangray.com.au/PDS-TMD-documents,
while TMDs for the Orbis Funds can be found at www.orbis.com.au on the 'Forms' page under 'How to Invest'. Each TMD sets out who an investment in the relevant Allan Gray or Orbis Funds might be appropriate for and the circumstances that trigger a review of the TMD.
Managed investment schemes are generally medium to long-term investments. They are traded at prevailing prices and the value of units may go down as well as up. There are risks with investing the Fund and there is no guarantee of repayment of capital or return on your investment. Subject to relevant disclosure documents, managed investments can engage in borrowing and securities lending. A schedule of fees and charges is available in the PDS.