(July 11, 2012) -- Banking scandals, Eurozone re-bailouts and even news that Silvio Berlusconi is to stand for a record fourth term as Italian Prime Minister have seen markets lurching all over the place - but mainly in a downwards fashion - in recent weeks.
Does this mean investors should be piling in to buy the FTSE, DAX and IBEX, taking the view that things will rebound eventually? Just 24 hours ago I would have said: "Probably."
After spending a morning with a very interesting fellow from Deutsche Bank, however, my view has shifted a little and my cheque book is staying in my pocket for now.
Francesco Curto is head of the CROCI desk at Germany's largest bank. He is based in London and oversees a process that picks out 'real value' stocks that should consistently return in the long-term. CROCI stands for Cash Returned on Cash Invested - sounds simple, right?
[The eagle-eyed amongst you will notice that he was the keynote speaker at our European conference at the end of June - I decided I needed to know more about the process after my interest was piqued by his theory.]
"Most fund managers - 90% - say value is important, but they are just trying to guess the price of a company," says Curto. "CROCI is a way of life."
This way of life is an arduous one though - the CROCI team goes through a company's accounts with a fine tooth comb. It can take a month to pick, investigate, and analyse a company before finally deciding on its viability in the CROCI database. There are only 760 companies after 18 years of the desk's existence.
"Most fund managers have a polluted version of value - they have no system," he says. When I see this week's news alerts saying that Fund Manager X has 'ploughed in' to Barclays shares as they slumped over the LIBOR scandal, I find it difficult to disagree.
Sure, these shares might be a 'screaming buy' now, but is that a foundation for long-term performance? Probably not, given the current state of the banking system.
To be sure, this is not an advert for Deutsche Bank but instead a call for investors to quiz fund managers about their process. I would counsel that they should avoid those who are out to make a quick buck (and the headlines) as fast money doesn't stick around for long.
European Editor, aiCIO