In his latest interview with The Market NZZ, author of Capital Returns Edward Chancellor was asked about his thoughts on the current market, bubbles, and the impact on value stocks when inflation returns. Here’s an excerpt from the interview:
What does this all mean for an investor?
Financial assets do not respond so much to the level of inflation but to the change in inflation rates. When inflation is taking off, gold tends to do quite well. I try to keep at least 80% of my wealth in real assets rather than in paper assets. I don’t own any long dated government bonds. I can’t think of constructing a portfolio that would protect you under all circumstances. I actually don’t think prudent investing is possible these days. There’s no way to hide apart from not buying into the most speculative assets.
If inflation returns, value stocks could finally have a revival?
Value is short duration – if you buy a stock at a P/E of 8, you’re going to get your money back in eight years, whereas when you’re buying a stock with a P/E of 50, it’s going to take fifty years. Obviously shorter duration should do better when interest rates rise. And value is low price to book – so you should be picking up some book value. If Europe has turned the corner realising it has to underwrite the whole Eurozone, maybe European value stocks are attractive. Once you have inflation, traditional investment virtue will return, and value stocks would be rewarded.
You can read the entire interview here:
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