Value investing: The living dead or alive and well? 
In the aftermath of 2008’s market meltdown, the markets, nay, the entire financial industry has become a veritable reflection of a zombie apocalypse.
Firms collapsed, offices were empty, and hundreds of people; lifeless, hungry, roamed the street.
That was then, but what has prevailed until today is the labeling of death. “Day trading is dead.” “Mutual funds are dead” “Fund of funds are dead.”
And probably the biggest of them all: “Value investing is dead.”
Curious as to what you guys think, is value investing a zombie strategy? Or is it alive and well?
I initially wrote this to debunk that day trading, value investing, and mutual funds are dead but as much as I wanted to give value investing an “alive” stamp, I see no reason for it to be aside from optimism.
To say that macroeconomics dominate today’s markets is an understatement. With any news being closely monitored and subsequently driving prices, a company’s financials have become less and less a driver of its value.
Adding to the problem is the movement of stocks in lockstep, with correlations as high as 80% in 2008-2009 and with them at around 60% today, picking a single stock out that will outperform or is undervalued with the rest has become a frustrating exercise for managers and investors alike.
Even David Einhorn chimed in saying:
"For years I had believed that I didn't need to take a view on the market or the economy because I considered myself a 'bottom-up investor’, the lesson that I have learned is that it isn't reasonable to be agnostic about the big picture."
This was around the time he bought gold.
Majority of these Graham and Dodd acolytes see that while the geopolitical issues affecting the markets won’t be in control forever, they agree that it will be here for some time, a notion not so welcomed by a style that has already seen billions pulled out and funds closed due to the uncertainty.
So what do you guys think? A lot of what’s going to happen to value investing is vested in future certainty, which in my opinion won’t be happening anytime soon.
Is there any reason for value investing to be alive and well today?
Advanced Happy Halloween guys, enjoy the weekend.
Comments
Ah yes, the art of getting to
Ah yes, the art of getting to a desolate town, buying all that is of value, and waiting for the sheep to arrive and out bid each other over the scarce resource before they sell off and move on to the next fad.
I'm of the absolute opposite
I'm of the absolute opposite opinion; the time for value investing has never been better. Let me explain.
With the prevalence of high frequency trading, algorithmic trading, technical analysis, sensational media and unedited unreliable information, the opportunity for a company to not correlate with its intrinsic value is very high - especially in emerging economies and the private equity marketplace. Not to mention the lack of original research, it all comes from the same places... I interned for a $13B fund abroad that outsources all their research to JP Morgan ... if everyone is using similar research that can't be good.
I know this example I'm about to provide is not statistically relevant but I'm sure it's applicable to others. I'm interning right now for a BB pwm group that has close to 100 million in AUM. All these guys do is stare at technicals all day, no independent research, no reading, just some book called the technical analysis encyclopedia and Investor's Business Daily.
If you think "value investing" will ever die you don't really understand what it is. I put value investing in quotes because it's not really value investing, it's more of a value/growth hybrid. There will always be times when market sentiment is too optimistic or too pessimistic.
Or a simpler argument, value investing will always be de facto "alive" as long as bubbles exist.
Get real ever since the
Get real ever since the recession + flash crash + mortage mess + bp spill + QE1 + QE2 investing is all about paying attention to head lines/ what will curency X do/ what policies will X pass/ who will win X election / what regulations are coming for X industries/ I should short X bc of populist rage such as cnn msnbc fox news etc
for example take a look at DJI yearly april 26 2010 11205 >>> july 02 2010 9685 >> October 29 2010 11,118.49
13% down then 13% up in a year time period many other indexes the same the days of buy and hold then forget for 2 years and come back are over.
deleted.
deleted.
LOL, go back to trading
LOL, go back to trading pokeman cards man
lol go back to trading
lol go back to trading pokemon cards instead of stocks mate
any other argument?
any other argument?
squirtlez wrote: Get real
Get real ever since the recession + flash crash + mortage mess + bp spill + QE1 + QE2 investing is all about paying attention to head lines/ what will curency X do/ what policies will X pass/ who will win X election / what regulations are coming for X industries/ I should short X bc of populist rage such as cnn msnbc fox news etc
for example take a look at DJI yearly april 26 2010 11205 >>> july 02 2010 9685 >> October 29 2010 11,118.49
13% down then 13% up in a year time period many other indexes the same the days of buy and hold then forget for 2 years and come back are over.
Well said.
List of the deceased:
-Hedge Funds
-Mutual Funds
-Day Trading
-Warren Buffet style "buy and hold" a falling knife investing
I win here, I win there...
so whats alive?
so whats alive?
I think value investing is
I think value investing is still alive and well as what New Yorker said previously, the markets still provided many mismatched prices of equities versus their intrinsic values. However, it needs to be integrated with technical analysis and global macro awareness to maximize returns. The one thing I have noticed (especially on the short side) is that prices can act irrationally much longer than expected. You can be wiped out of your position before it has time to correct itself, so you need to be aware of the technicals to assist with timing.
technicals analysis works
technicals analysis works about as well as astrology you idiots. past movements don't indicate future movements.
I would argue that value
I would argue that value investing is as alive as ever which is because "value investing" is not a trading strategy, it is a methodology based on the fundamental truth that buying something for less than its worth is a good trade.
The mindset behind value investing has nothing to do with trading, not even with securities as such. That's why i.e. Buffett went from being a fund manager to owning entire companies and building a holding company. If you can buy a dollar for fifty cents, you want to buy the entire dollar. Buy the entire company and harvest its cashflows over its life - and thus all value you bought at a discount.
That's not to say that there is a whole number of issues which turn value investing for mutual/hedge funds into a simple yet difficult strategy. Volatile short term funding (i.e. mutual funds, most hedge funds?) combined with volatile pricing is obviously a bad combination with an investment style that is focused on long-term returns and kind of agnostic towards short term volatility. That's why value investors often either look for strong catalysts (i.e. activist investing) or switch to a more stable funding base (holding company as opposed to fund, partnerships/hedge funds with long lock-in periods).
By the way: I don't see Einhorn trading S&P futures. The last deal he pulled is massively shorting JOE. Based on bottom-up research. For what it's worth, that's pretty close to value investing..
New Yorker wrote: technicals
technicals analysis works about as well as astrology you idiots. past movements don't indicate future movements.
I apologize if technical analysis wound up to be excessively technical for Mr. Rick Ross to comprehend.
I win here, I win there...
How could value investing be
How could value investing be dead ?
It is well and alive and operating very profitably.
And No where did I read that in order to be a value investor you have to ignore the BIGGER PICTURE.
It has served me well over the years and I am sticking to it, because it incorporates not only micro matters but MACRO issues as well when determining the final price of a stock. Maybe you should re-read the meaning of value investing !
Living Dead. Soon to be
Living Dead. Soon to be Deceased Dead. Why? Because unraveling 20 years of wins/loses will bounce across all sectors. De-leveraging, Dollar Debasement followed by Inflation or Deflation induced Trade Protectionism will hit the importers/exporters/offshorers equally badly in multiple time frames. Keep on playing the music while the chairs are taken away one by one. Everyone I know has only 1 trade on with some variations of the same theme.
Value investing isn't really
Value investing isn't really trading, like gold said aswell, it's a method of buying something significantly under the market value. A good company that's undervalued has the potential to make more profit than another company that's overvalued or correctly valued. I don't think fundamentals are the only research you should use when buying a stock. I think you should use technical analysis to see when the best time is to buy a share of the company.
Last time I checked, buying a
Last time I checked, buying a business for less than it's intrinsic value isn't dead. I don't think buying a dollar for fifty cents will ever die.
How else would you invest? Buy a business for more than its worth? No intelligent businessman would do that. That's why I believe value investing is the only logical way to approach the markets in the long term.
the only thing alive now are
the only thing alive now are ETFs, and finding new ways to make markets for more and more illiquid underlyings, and make as much spread as you can before the others join the game.
correlation is still too high
correlation is still too high right now and an uncomfortably large amount of stocks are moving in tandem (just like after '87 crash) hence the additional effectiveness of ETFs. Once correlation comes back down to its historical average value investing will regain its strength. Several of the value guys on the buy side I interact with are still hoarding lots of cash
If you were to pick stocks in
If you were to pick stocks in early 2009 based on value metrics like price/book you would have absolutely pounded the market over that year. I'm talking 100%-200% returns on a portfolio of micro or small-cap stocks with low-debt to equity and P/B. Paying attention to technicals and market momentum would have been the only way to getting a decent timing, but value investing is a set of principles that define what constitutes value, not a trading strategy.
So no, value investing didn't die in the crash. But I wouldn't bet on it outperforming right this second.
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New Yorker wrote: I'm of the
I'm of the absolute opposite opinion; the time for value investing has never been better. Let me explain.
With the prevalence of high frequency trading, algorithmic trading, technical analysis, sensational media and unedited unreliable information, the opportunity for a company to not correlate with its intrinsic value is very high - especially in emerging economies and the private equity marketplace. Not to mention the lack of original research, it all comes from the same places... I interned for a $13B fund abroad that outsources all their research to JP Morgan ... if everyone is using similar research that can't be good.
I know this example I'm about to provide is not statistically relevant but I'm sure it's applicable to others. I'm interning right now for a BB pwm group that has close to 100 million in AUM. All these guys do is stare at technicals all day, no independent research, no reading, just some book called the technical analysis encyclopedia and Investor's Business Daily.
If you think "value investing" will ever die you don't really understand what it is. I put value investing in quotes because it's not really value investing, it's more of a value/growth hybrid. There will always be times when market sentiment is too optimistic or too pessimistic.
Or a simpler argument, value investing will always be de facto "alive" as long as bubbles exist.
And that is how Big Meech Capital is the next LTCM.
Value investing is not dead it is just not a good time to concentrate on value when everyone else is in GROWTH right now.
@ SQUIRTZ: I completely agree with your post my computer science lil geek.
@ NEW YORKER: Pretty sad that you went from $13 billion dollar fund to a $100 million PWM group, I wouldnt even be proud of posting such a disgrace, that's like saying you went from RENTECH to UBS wealth management.
"Climbing a mountain that's only getting steeper"
-Barboon
barboon wrote: New Yorker
I'm of the absolute opposite opinion; the time for value investing has never been better. Let me explain.
With the prevalence of high frequency trading, algorithmic trading, technical analysis, sensational media and unedited unreliable information, the opportunity for a company to not correlate with its intrinsic value is very high - especially in emerging economies and the private equity marketplace. Not to mention the lack of original research, it all comes from the same places... I interned for a $13B fund abroad that outsources all their research to JP Morgan ... if everyone is using similar research that can't be good.
I know this example I'm about to provide is not statistically relevant but I'm sure it's applicable to others. I'm interning right now for a BB pwm group that has close to 100 million in AUM. All these guys do is stare at technicals all day, no independent research, no reading, just some book called the technical analysis encyclopedia and Investor's Business Daily.
If you think "value investing" will ever die you don't really understand what it is. I put value investing in quotes because it's not really value investing, it's more of a value/growth hybrid. There will always be times when market sentiment is too optimistic or too pessimistic.
Or a simpler argument, value investing will always be de facto "alive" as long as bubbles exist.
And that is how Big Meech Capital is the next LTCM.
Value investing is not dead it is just not a good time to concentrate on value when everyone else is in GROWTH right now.
@ SQUIRTZ: I completely agree with your post my computer science lil geek.
@ NEW YORKER: Pretty sad that you went from $13 billion dollar fund to a $100 million PWM group, I wouldnt even be proud of posting such a disgrace, that's like saying you went from RENTECH to UBS wealth management.
*huggles*
except im a sophomore and
except im a sophomore and when you were my age you were probably working as a tour guide for prospective students.
and furthermore, I forgot to mention fund manager's focus on short-term results (cf. introduction to margin of safety by seth klarman - baupost group).
I think value investing is
I think value investing is alive and well but it exists in the sub 10bn market cap space. When I hear people talking about value investing it tends to be about these old blue chip behemoths that have not moved in price for 10 years. The reality is for most companies they were trading at insanely high premiums 10 years ago and over the past decade many have not seen substantial earnings growth. Couple contracting multiples with weak earnings growth and you have a value trap not a value stock!
As far as value investing goes I think the real opportunities where you can get in with some decent timing and hold for long periods.
Housing in 2003...
Energy in 2005 when oil first crossed $40/barrel....
Commodities related to China/ global infrastructure in 2006/2007
Gold in 2007....
Large Cap financials in 2009/ a lot of companies that got ridiculously crushed.... obviously this took some skill to get the best prices as it was buying the falling knife, stocks clearly bounced before the economy did.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Buffett has been value
Buffett has been value investing for decades. I doubt it's going to end anytime soon.
Macroeconomics 101: A
Macroeconomics 101: A recession is part of the business cycle.
Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.
-Niccolo Machiavelli
The day long-term value
The day long-term value investing is dead is the day I'll start hoarding guns and canned food, because it means the market will either be flat or downward sloping, and that shit can't last.
For value investing, I think a lot of the macroeconomic situation is factored in based on the discount and growth rates applied. It may not be quite as exciting or obvious as calling a change in interest rates or the breakdown in a currency band (ala global macro), but that's why Buffet is called an investor while Soros is called a trader. I have a lot of respect for Soros and PTJ, and I actually favor their style more than investing, but in a time like this you're going to get whipsawed out of a lot of your positions and thinking slightly longer term is the way to go.
With so much uncertainty around, real assets/companies which provides a real cash flow / yield and profits is bound provide long term value versus trying to buy assets anticipating a flood of capital (I'm looking at you gold). Things like gold and art (and fiat money) have value because we ascribe value to it, but it really seems like a greater fool game to me.
I'd be more inclined now to look at commodities that actually have uses (I believe someone mentioned palladium and silver instead of gold, but I forget who), and also other tangible assets like real estate.
Value investing def exists in
Value investing def exists in the private sector. Long term private holds allow you to make the cash flow decisions and ignore the noise created in the market and from board member politics.
If you believe value
If you believe value investing is dead, or are even entertaining the idea, then you do not understand what value investing is. Everyday Mr. Market (influenced by all those macroeconomic and political considerations mentioned above) is doing one of two things: (i) offering to buy your shares in a business at a price below what you believe to be fair value, or (ii) offering to buy your shares in a business at a price above what you believe to be fair value. Therefore, a value investor must have his view of fair value. Otherwise he is simply a speculator, guessing at the market's next move, attempting to outwit and outsmart the millions of people doing that very same thing.
Sorry for the delay guys,
Sorry for the delay guys, been swamped over the weekend.
Anyway, amidst the Kool-aid laden responses there are some great points made here and yeah, I admit I may have gone into this from a different perspective.
From a stockpicking standpoint, as Goodbread, barboon, 1.21 gig and the rest said, it's really not a great time for it now and would probably not perform well at all but as trade4size related, those that have gone for other opportunities would've fucking killed it.
Value isn't dead after all.
@squirtz- looking forward to how your short treasuries call plays out bro, looks good from here.
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