In this interview with Value Investor Insight, Richard Pzena explains that the companies he invests in are often viewed negatively, which is why they’re cheap. Critics frequently point out the numerous problems with these companies, but Pzena invests when he believes the factors causing their low prices are temporary.
He emphasizes the importance of a long-term outlook, as focusing on short-term volatility would prevent investors from buying the cheapest stocks, which often come with uncertain outlooks.
Pzena notes that he’s never found a great company with strong management, high margins, and a dominant market position at a low price, as such stocks are rarely undervalued.
Here’s an excerpt from the interview:
Pzena: When I talk about the companies I invest in, you’ll be able to rattle off hundreds of bad things about them—but that’s why they’re cheap! The most common comment I get is “Don’t you read the paper?” Because if you read the paper, there’s no way you’d buy these stocks.
They’re priced where they are for good reason, but I invest when I believe the conditions that are causing them to be priced that way are probably not permanent.
By nature, you can’t be short-term oriented with this investment philosophy. If you’re going to worry about short-term volatility, you’re just not going to be able to buy the cheapest stocks.
With the cheapest stocks, the outlooks are uncertain. In my whole career I have yet to find the great business with a wonderful management team, high margins, a dominant market position and all the conditions everybody wants, at a low price.
The stocks of such companies don’t sell at a low price. If I find one, I’ll cheer, but it hasn’t happened yet.
You can find a transcript of the interview here:
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