© 2020 by Sherrillee Publishing, LLC.

We believe:

 

  • Stock market returns come from a combination of earnings, earnings growth, valuation change and dividend payments.  Stocks with low valuations and earnings growth offer the possibility of double-barreled appreciation in the form of higher earnings multiplied by a higher valuation.

  • Volatility is not risk.  Stock prices fluctuate.  Stocks also have a value that is independent of the stock price.  The value may not be easy to discern but it exists nonetheless.  Act Two believes that a non-volatile stock trading far above value is riskier than a volatile stock trading far below value.   

 

  • Less risk and more reward go together.  Act Two believes that price and value tend to converge in the long run.  Therefore, the less one pays in relation to estimated value, the greater the reward and the lower the risk.  The difference between price and estimated value is often referred to as the “Margin of Safety.”

 

  • Diversification is good.  “Di-worsification” is not.  One should not employ strategies with an odds-against chance of success simply to smooth out returns compared to “the market” as a whole.

 

  • Patience furthers.  Investors should measure success over the course of a market cycle.