My Macro Approach to Finding Undervalued Stocks in Over 30 Countries

Lyn Alden

United States
Stocks
Long-Term Investor

Who are you and what’s your story?

My name is Lyn Alden, and I run LynAlden.com as a source for financial research and education.

I was born into poverty at a young age, and when I found some degree of stability, I had an inherent interest in investing, building wealth, and understanding the economic system. I began investing in precious metal coins as a child, then moved onto equities as a teenager, and have been investing in a variety of asset classes ever since.

My professional background consists of a blend of engineering and finance I’ve been investing ever since I was very young, but rather than go into finance professionally, I got a degree in electrical engineering and went into the industrial automation and aviation simulation industries instead. From there, I got a master’s degree in engineering management, focusing on engineering economics and financial modeling, and shifted more into a leadership role where I began leading the finances and day-to-day operations of an engineering facility.

I then founded Lyn Alden Investment Strategy in 2016 to bring my quantitative and qualitative background to finance. My goal is to distil complex macroeconomic topics in basic language so that folks can understand the big picture moves that are happening in the world, while also highlighting individual investments. I provide free newsletters and articles, and have a low cost paid research service that comes out more frequently.

What do you invest in?

My first investment consisted of precious metal coins as a youngster, back in the late 1990s when gold was under $300 per ounce. From there, I moved into equities, with my first stock being Adobe in the mid-2000s, around 2004 or so.

To this day, equities and precious metals remain my core circle of competence. In more recent years, I added digital assets to the mix, as they conceptually fit in with the precious metal asset class.

I have views on other assets as well, like industrial commodities, but I prefer to express those views with equities where possible, such as the producers of those commodities.

In the years after 2009, I realized that this was a very “macro heavy” environment and need to incorporate macroeconomics into my investment framework. We’re seeing fiscal and monetary policies that haven’t occurred since the 1940s in some cases.

So, my approach combines fundamental investing with a global macro overlay. The macroeconomic aspect helps me figure out which asset classes and regions are ideal, and then due to my background in equities, I dive into individual stocks to find good ways to play those themes.

Looking down at the individual company level also circles back and informs my macro view. Many investors are siloed, meaning that they focus on one or two key niches. Even in a broad sense, a traditional macro investor rarely goes down and looks at individual companies, CEOs, or balance sheets, to get a feel of what’s happening down at that level. On the other side of the spectrum, a stock picker rarely takes a step back and looks at the 30,000 foot macro view.

For my edge, I blend the disciplines of macro and micro and look for positive intersections that benefit from multiple forces.

Walk us through your process of identifying and executing on investment opportunities?

In general, I take a rather contrarian approach to markets. I look for things that are out of favor, and figure out if they are value traps or value opportunities.

To start with, I monitor broad equity valuations across 30+ countries, taking into account interest rates and various metrics. I also monitor national debt levels, macro forces, trade balances, and other variables.

From there, I dive down into interesting places to see what stocks can best represent a thesis and offer compelling value. Sometimes it’s a deep-value pick, trading below book value with a single-digit P/E ratio with a business model that remains important and relevant nonetheless. Other times, it’s a growth-at-a-reasonable price “GARP” stock, meaning a rather expensive stock but one that has enough growth to justify it.

In general, I look for companies with appropriate valuations relative to their growth rates, and high returns on invested capital. I tend to avoid the tiniest or deepest value low-quality equities, and the fastest-growing unprofitable companies, and instead focus most of my attention on the middle 80% of the valuation spectrum that consist of profitable companies of varying growth rates.

I prefer dividends where possible, but don’t require it. My time horizon aims at 3-5 years, although I’m certainly happy to hold for longer if it makes sense to. My ideal holding period is forever, although I’m willing to sell if something is more than fully valued and I identify notably better opportunities.

Since you first started, what have you learned that has had the biggest impact on your success and the growth of your portfolio?

One of my strengths and weaknesses is that I don’t have that many big losses, nor do I have any 10-baggers. My best is about a 7x gain from my entry point after a several year holding period, along with a number of 4x or 5x gainers over shorter 1-3 year periods.

I tend to follow the principle popularized by Buffett of “Rule number one: don’t lose money. Rule number two: see rule number one.” It’s not really a deliberate choice; it’s just my personality and style. I’d rather win a baseball game by constantly hitting doubles and rarely striking out, in other words.

That’s not to say I don’t have losing investments. Some of my investments indeed have been sold at 20-30% losses when the thesis didn’t work out, and during extreme moments from macro/liquidity shocks I have investments that have temporarily been down more than 50% before popping back up.

However, through a combination of diversification, position sizing, and conservative investing principles, I haven’t really lost any “big” money on a single idea. In two decades of investing, I’ve never blown up my portfolio and had any major impairment for a large number of sizable positions.

But that approach also caused me to miss some big things. I didn’t catch on to the FAANG bandwagon fast enough to see the “growth at a reasonable price” value proposition there, because I had some trouble looking past the high valuations. I was an investor in Microsoft in the early 2010s, and rode that one pretty well, but missed Facebook, Apple, Amazon, and Google until they were already rather sizable. At that point I was able to ride some of them from there, but not as early as I should have.

Some of my best investments include buying a diverse collection of stocks in April 2009 and letting them run for years, buying Bitcoin and other volatile assets in April 2020 at low prices during the pandemic-related liquidity shock, selling all of my gold in 2011 to buy more equities, and buying back into gold and gold stocks in 2018 at much better prices.

Some of my worst investments are things I missed, like not buying Amazon or Facebook early enough.

What books, platforms or resources have you found useful?

I use YCharts and F.A.S.T. Graphs as my primary data/charting tools. I also use stock screeners, such as Zacks’ and others.

Joel Greenblatt’s “The Little Book that Beats the Market” is a great read for value investing in my opinion. Specifically, his combination of finding cheap companies (taking into account debt) that also have high returns on capital, is a great strategy. Especially if you also add growth rates. Valuation, growth, and ROIC are three key variables for a long-term compounded.

Howard Marks’ “The Most Important Thing” is a key read for investing strategy, in my opinion.

Ray Dalio’s “Big Debt Crises” was a great read that put some pieces together for me on how the long term debt cycle works.

The Durants’ 1968 book, “The Lessons of History” is also a key read for macroeconomics and broader things for a very long term perspective, in my opinion.

Besides that, I mostly learn from raw data. I put together data sources that stretch over a century and see the various factors that contributed to inflation or deflation, and to analyze the effects of fiscal and monetary policy on various asset classes.

What advice would you give to someone who’s just starting?

I honestly would do things similarly to how I did them, by learning over time.

A key thing in the beginning, in my opinion, is to figure out what type of money manager you are. Are you a trader or an investor? Neither is necessarily good or bad, but folks seem to be wired a certain way.

Some people, for example, just can’t stand a 20% drawdown on an investment, or sitting there for 2-3 years patiently watching an investment pay off. They want to identify stop points, ride momentum, keep a close eye on things, get in and out, etc. Most people don’t make this work but a few can.

On the other hand, other people are fine with short-term volatility in exchange for long-term growth, prefer not to trade too often, and stick with tax-advantaged strategies like buy-and-hold.

So, I think it’s important early to identify ahead of time what type you are and how you want to make money. Trying to be a bit of everything is unlikely to work. Read up on different styles, try different things, but then eventually start settling on a process, stick with it, and change it as needed very prudently.

What investment opportunities are you excited about at the moment?

I think the uranium sector is going to see a lot of growth over the next 5-7 years. This includes the price of uranium itself, and the miners that produce it. With Asia bringing new reactors online, and the commodity currently trading below the production cost of all but the largest and highest-grade mines, the price has to rise enough to justify new production.

I also continue to be bullish for the long term on monetary assets like gold, silver, and bitcoin. They don’t provide cash flows but in an environment of negative real yields throughout much of the world, they are useful as stores of wealth commodities, with varying levels of risk. Gold is the lower volatility choice, while silver and bitcoin have more kick to them.

In general, I think some of the disruption that will likely come from bitcoin and other layers on top of it like lightning are not fully understood by quorum of investors yet. For example, there are new apps that can do fiat-to-BTC-to-fiat payments in less than a second with final settlement, between currencies for nearly free, using the lightning network that is built on top of bitcoin. From the perspective of the user, they’re just sending dollars for euros internationally, or sending dollars for international remittance in the form of stablecoins, but the underlying network to transport that involves turning it into bitcoin for a few microseconds, sending it, and then converting it again.

However, there are a lot of traps and scams in the broad “crypto” industry that basically serve as landmines to mess newcomers up.

I think high-quality commodity producers, with strong balance sheets and low costs of production are underrated as well. We’ve been in a 13-year bear market for commodities but many leading indicators are suggesting that the 2020s decade should be a positive one for commodities. For copper and many of the critical metals, there haven’t been significant discoveries for years, and the cost of the commodity hasn’t been enough to justify bringing a lot of new supply online, and so the market has spent years working off previous periods of oversupply.

I also like out-of-favor areas like Russian equities, Japanese trading companies (commodity and industrial exposure), certain bank stocks, and so forth.

Lastly, I’m bullish for the 2020s decade on emerging markets broadly, including growth stocks and value stocks.

Can you share a story about an investment opportunity that you passed on and went on to grow beyond your expectations?

I looked at Amazon in 2010 and passed on it for valuation reasons even though I was an early Prime subscriber and understood the business well. That would have been far more than a 20-bagger if I would have bought and held through today. I was never explicitly bearish on it, but just couldn’t quite pull the trigger to buy, since I had trouble figuring out how to price it.

Over time, I included more growth at a reasonable price “GARP” analysis in my framework. Back then, I had trouble buying unprofitable companies or stocks with a P/E over 20.

Fortunately, I caught on eventually how important software was and began allowing somewhat different metrics for software companies and other tech stocks, without going overboard and being willing to buy a hot story at any price.

Where can readers go to learn more about you?

I’m available at LynAlden.com, and I’m on twitter @lynaldencontact.

Thanks for the interview, and hopefully the 2020s go forward in a better way than they started for many people.

Thanks to
Lyn Alden

 for doing this interview.

If you have any questions or comments, leave a reply below.

Get More Stories Like This

Enter your email below to get early access to more stories just like this directly to your inbox

One Response

  1. Great read, I find the advice about figuring out what kind of money manager I am (trader or an investor) really useful.

Leave a Reply

Your email address will not be published. Required fields are marked *