“There are several signs of what I would call excessive optimism or speculation or overconfidence in the U.S. market.” – 01:39
Jay Hill, Managing Director of Tweedy Brown, joins Remy Blaire to discuss the current state of the stock market and the concept of American exceptionalism. The conversation begins with Remy highlighting the common rationale for investing in household staples, big tech names, and momentum plays, while also noting the potential for small-cap stocks to surprise investors.
Jay shares insights into his investment strategy, which focuses on identifying companies trading at two-thirds or less of their estimated private market value. He expresses concern over the increasing difficulty of finding attractive U.S. stocks, suggesting that American markets are currently priced for perfection. In contrast, he points out that international markets, particularly in Europe and the U.K., present lower expectations and more favorable valuations.
Throughout the episode, Jay discusses several indicators of excessive optimism in the U.S. market, including record highs in stock prices, low corporate credit spreads, and unprecedented levels of margin debt. He warns that these factors could lead to disappointing returns for U.S. investors over the next decade, particularly given historical performance trends of the S&P 500 at similar valuation levels.
Remy and Jay also delve into the significance of insider buying as a key valuation metric. Jay explains that Tweedy Brown has always been interested in insider buying, viewing it as a positive signal when company executives invest in their own shares. He cites historical studies that show market outperformance associated with insider buying and shares findings from Tweedy Brown’s proprietary study, which indicates that combining insider buying with quantitative cheapness leads to superior performance.