It is vital to distinguish between the share price of a company (influenced by psychological factors and market inefficiencies) and its economic value (value associated to assets, profits, debt, prospects, etc).

  Each time a share is purchased, part of a specific business is being acquired, and not simply a security whose price rises and falls. It is therefore essential to know the business that is being acquired and whether the price being paid for it is worthwhile.

  In the short term a company's price performance is totally unpredictable as it is influenced by factors that are beyond the control of investors (psychological reasons, market manipulation, political conflicts, etc). In the long term, however, share prices tend to reflect the economic value of companies.

  Attempting to predict market behavior is a complicated task that requires a great deal of dedication; even then, forecasts rarely prove accurate. Accordingly we prefer to seek out solid and undervalued companies, as they will certainly outperform the market regardless of its performance.

  A company’s size is not of paramount importance when making an investment decision. For this reason it is better to invest in small and relatively unknown companies which are undervalued, than to purchase blue-chips at exorbitant prices.

  Share prices that imply attractive ratios (P/E, EV/Sales, EV/EBITDA, Price-to-Book Value, dividend yield, etc.) which are interesting both in absolute terms and relative to peers.

  Low debt levels. It is sometimes possible to find companies that are debt free and with cash positions that are close to, and sometimes higher than, their market capitalization.

  Recent purchases of shares by the owners and directors, or repurchases of shares by the company itself, may imply that those who have a better knowledge of the company display, confidence in its future results. It is for this reason that we do not usually participate in public offerings (the owners sell in search of the best offer and in most cases they will come out ahead).

  Share prices that are lower than or close to cash prices paid in mergers and acquisitions within the sector (if the shares are payment method of the transaction, the reference will only be reliable when the shares are reasonably valued).

   By investing in companies with some of the above-mentioned characteristics, it is possible to minimize risk and obtain healthy returns in the long run. This is demonstrated by the historical results of our actively managed mutual funds (Bestinfond, Bestinver Bolsa, Bestinver Internacional, Bestinver Mixto, Bestinver Mixto Internacional and Bestinver Renta).