Consensus

Europe is a mess, everyone agrees: poor demographics, sclerotic and oppressive regulation, political dysfunction. European stocks lost 6% last year as the US gained 13%, about as wide a performance gap as we’ve seen in at least the past 50 years.

So how do we explain this chart: small/mid-cap French stocks are at an all-time high.

Consensus is (almost) always logical, but not always right. There are many very good reasons to avoid/underweight European assets. And it’s certainly possible that investors in small cap French stocks have become detached from reality. But it’s also possible that conditions are not as dire as we think, or that valuations more than adequately reflect this reality.

Overweighting European equities may seem like a heroic leap (and I’m certainly no hero), but when we have a combination of record performance differential, broad negative consensus and a market data point (French small caps) that is at odds with the headlines, investors would do well to remember that it’s often comfortable to be with the consensus, but not always profitable.

• 10 Sep, 2020

  Still Beach Reading

  It's still beach weather here in Southern California, so I have a few more suggestions for beach reading.Begin Again by ...

• 11 Nov, 2014

  Logistics

  Not enough attention is being paid to the work slowdown/stoppage going on at West Coast ports.The last time there was a ...

• 17 Oct, 2016

  What I Learned While Atoning

  Twenty-four hours without food or drink is supposed to help focus the mind on the task at hand: atoning for the sins of ...