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Is The Min Vol Bubble Bursting?
Gallons of digital ink has been spilled over the past several months documenting the "bubble" in Min
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Assuming the happy talk is correct….
H-Man, great commentary. My vote is the bubble bursts.
How many people know exactly the difference between value and low volatility stocks? Utility and telecom stocks can be considered low volatility and value depending on their stock price. Cyclicals can be value stocks depending on their stock price, but then call them cyclicals According to my little brain the difference between value and low volatility is a very gray area and some clarification would be appropriate from Mr. Walt to support the understanding of his audience…. Thanks.
Value stocks are typically viewed as low price to book, Enterprise Value to EBITDA, low PE ratio, Price to Sales, Price to Free Cash Flow, etc. The stocks may exhibit high stock vol or low. All about valuation metrics.
Low vol stocks are all about daily price movements (relatively low movement) and they don’t care about valuation.
So a money losing, neg FCF, highly indebted stock could theoretically be a low vol stock if it moves .05% up every day while a 2 PE, 40% FCF, etc stock that moves 10% a day would be a value stock. Neither share both traits but they fit the profile.
Not all this always makes sense and these are extreme and unrealistic examples but I use them to make the point.
Utilities today would be low vol but not true value stocks while banks may be viewed as value (though vol is pretty low though it is on pretty much everything).
Value typically is defined looking more backward then forward (wrongly in my opinion).
Value to me is a discount to intrinsic value (discounted future cash flows) rather then backward looking metrics.
There are usually pretty good reasons for value stocks (cheap stocks) especially with the secular systemic challenges many businesses now face.
Hope this helps a bit. Invest/trade well, be smart. Good luck
Thank you very much for the extensive clarification.
You are very welcome, hope it helps.
Look up the holdings of USMV and VLUE, and you’ll get a sense of the practical difference between the factor styles.
doesn’t min vol include many stocks that are interest rate sensitive.. which is fine but it just helps to understand what you’re buying and why…