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NOVEMBER 3, 2020



Is This a Good Time to Invest?

November 3, 2020

By Mark Oelschlager, CFA

I am often asked by investors whether this is a good time to invest.  Even though this opinion may hurt our bottom line, we openly inform people the following:  we believe this is a time to be cautious - because we believe the risks in the market are higher than usual.  But the broader answer is more nuanced than that.

Today feels a lot like 1999 in that the market as a whole is highly valued, optimism is high, speculative day-trading by individual investors is rampant, the IPO market is hot, and growth/tech stocks have led the way to an extreme degree, particularly those of companies that are unprofitable.  So, caution is warranted.  On the other hand, this market reminds us of 1999 in another important way: the disdain for certain areas of the market.  In 1999, many companies with lesser growth prospects were shunned by investors in favor of the sexier growth stocks.  But during the correction of 2000-2002, their fortunes reversed, with the lowly-valued stocks outperforming the growth stocks dramatically.  We believe the probability of something similar happening this time around is high.

The exhibit below from Empirical Research Partners illustrates why we believe this.  This chart, which to me is the most important chart I look at, represents how widely dispersed the valuations of individual stocks are.  Currently, the measure is 2.5 standard deviations above the mean, which is a synonym for “a lot.”  As you can see, in the last 94 years valuation spreads have exceeded this level only a handful of times.  Each time, the level of dispersion eventually returns to normal, and as it does so, the lowly-valued stocks tend to fare much better than typical growth stocks.  While we don’t know when this will occur, we have tried to position the Towpath Focus Fund for this eventuality.




So, getting back to the original question:  Is it a good time to invest in the market?  If you are considering investing new funds, an automatic investment plan (AIP) is a great tool in any market to help reduce portfolio risk caused by short-term volatility, as it allows you to invest slowly by automatically investing the same amount every month.  If you are already invested in the market and question whether your current investment strategy is appropriate under today’s conditions, I will say this:  given history and the opportunities the current market situation creates, I like this starting point for our investment style and how we are positioned relative to other managers.

Of course, this is all just my opinion.  There are no guarantees.

Mark Oelschlager, CFA
Oelschlager Investments

There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including potential loss of principal. Past Performance Does Not Guarantee Future Results. Asset allocation does not ensure a profit or guarantee against a loss.

Equity Risk: Equity security values held by the Fund may fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of the securities participate or other factors relating to the companies.

The price-to-book ratio (P/B ratio) compares a company’s market value to its book value. The market value of a company is its share price multiplied by the number of outstanding shares. The book value is the net assets of a company.

Valuation spreads refers to the difference between the most expensive and the cheapest stocks.

Standard deviation is a statistical measurement that, when applied to the annual rate of return of an investment, sheds light on that investment’s historical volatility.

An investor should consider Towpath Focus Fund’s investment objectives, risks, charges and expenses carefully before investing. This and other important information about the investment company can be found in the Fund’s prospectus and summary prospectus. To obtain a prospectus or summary prospectus, call 877-593-8637. Please read the prospectus carefully before investing.

Towpath Funds are distributed by Ultimus Fund Distributors, LLC (Member FINRA). Ultimus Fund Distributors, LLC and Towpath Funds are separate and unaffiliated.

U.S. Large-Cap Valuation Spreads 2020..p
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