Global stocks

Through investment in global equities, Omega seeks to profit from fundamental principles of financial theory and take advantage of the insights of active portfolio managers.

In financial theory, the fundamental value of a share of a company's stock is primarily a function of the company's future earnings. If a company pays out a high proportion of its earning as dividends, then the fundamental value of the stock is a proportionate share of the discounted present value of future dividends.

No one, however, knows what the future earnings of any company will be. Hence, the fundamental value of shares is unknown.

The market value of a company's shares largely reflects market participants' expectations about the company's future earnings. Expectations about future earnings include expectations about how much the company's earnings are likely to grow over time. When the market-equilibrium view is that a company's earnings will grow significantly over time, the company's stock will sell at a high ratio of price to current earnings.

The market value of a company's shares also reflects investors' risk aversion. If a company's earnings are volatile or its future earnings are highly uncertain, then investors are likely to bid less for the stock than they would if earnings were more stable or future earnings were more certain.

In precise financial theory, a stock price is said to be in a bubble if the stock's market price exceeds the stock's fundamental value. The catch, of course, is that the stock's fundamental value is unknown and unknowable.

As time passes, a company's earnings either meet, exceed or fall short of investors' expectations. If earnings exceed investor expectations, then the company's stock price is likely to rise. If a stock is not in a price bubble and earnings fall short of expectations, then the stock price is likely to fall.

If a stock is in a price bubble and the company's earnings fall short of investor expectations over an extended period of time, investors are likely to recognize eventually that they have been and are in a bubble. Investor expectations will shift. The bubble will burst. The stock price will fall.

When a bubble bursts, investors revise their expectations about a company's likely future earnings. The stock's new market price will reflect investors' bid-ask equilibrium execrations about future earnings and investors' risk aversion.

If stocks' fundamental values were knowable and their market prices reflected those fundamental values discounted by risk premia, then one could assume that, in growing economies, the values of most stocks will rise. One simply could go long— buy and hold index funds— and do well— or at least okay.

In the real world, however, market prices of stocks are often above or below their fundamental values. That is, market prices are often out of line with shrewdly forecast future earnings.

The less efficient a financial market is, the more likely prices are to diverge— higher or lower— from fundamental values. The less efficient a market is, the farther market prices are likely to diverge from fundamental values. At times, market prices may be in a bubble. Accordingly, going long is not the best strategies for all stocks at all times.

If, at a given point in time, a market participant concludes that a company's future earnings are not likely to meet the expectations implied in the stock's current price, then the analyst reasonably can expect the price of the stock to fall when investors see that their expectations are not being met.

To profit from a fall in price that she anticipates, a market participant may go short: She may borrow the stock and sell it at the current market price. If and when the market price falls, she buys the stock at the lower price and gives the stock back to the person or firm from whom she borrowed it. She profits by the difference between the price at which she sold the stock and the price at which she bought it (less the cost of borrowing the stock).

Omega recognizes the complex interplay among national economies, companies' earnings, investor psychology, investor expectations and market dynamics that determine market prices and price changes. We recognize that, oftentimes, the strategy most likely to produce a profit is to go long. Oftentimes, the strategy most likely to produce a profit is to go short.

We recognize that the best profit opportunities are often to be found in less efficient financial markets.

We recognize that market bubbles occur. We believe that pursuing profits by trying to time when a bubble will burst is too hazardous a pursuit to undertake with our clients' money. We do our best to steer clear of bubbles— going up or coming down.