Happy Wednesday RV community. I am developing a personal process for filtering 3–5-year value plays (I know, I know, value is dead). Interested in how a strong narrative can change investor behavior and diverge from real economic fundamentals. Specifically, how a narrative can warp future supply and demand estimates and pull that distortion into current equity prices. Would like to work it from the top down. Trying to capture real macro data vs. macro narrative and drill down to opportunities. Below are my steps. Looking for feedback – I have thick skin and open to all feedback and criticism. How can I make it better? I know this is probably basic for most of you, but I’m a newbie and trying to take advantage of this platform to refine my process. Thanks for any and all feedback!
- Identify and explain a specific and prevailing macro narrative. Is narrative driven by real economic fundamentals or perpetuated by hopeful (or incitive driven) influencers (i.e. media, motivated institutions, etc.)? Or an equal balance of the two?
- Which sectors are influenced by the narrative? Identify sub-narratives within the sector. Confirm association with macro narrative (i.e. Green/ESG narrative EV sub-narrative).
- How does a shift in the macro narrative influence sub-narratives? Does it shift the sub-narrative closer to or further from reality?
- Identify examples where the narrative has diverged from real supply /demand. Identify equities that have been overbought / oversold as a result of divergence.
- Deep dive equities to locate durable competitive advantage in oversold and poor fundamentals (or fraud) in the overbought.
- Identify equities on the margin (or outside the narrative) that could become relevant in a narrative shift.