Is Value Investing Outdated?

Read Asness, Mauboussin, others. It's a well-covered topic. TL;DR, no, it's not dead. 

Yes

Maybe, Klarman only annualized 4% gains between 2014-2025.

this is the wrong sub to ask. should ask in the private equity section for fundamentals.

Value investing is more a philosophy. Buying something with a margin of safety. Buying something that trades below its intrinsic value. Lot of people dont really understand what value investing it. 

Value investing =/ automatically buying everything below a 6x p/e. 

Value investing and growth are not mutually exclusive. you can buy something that is cheap and still growing e..g Novo Nordisk.

A philosophy cannot die. Today's institutional rules & risk management make value investing  difficult though. People dont have an attention span also more than 6 months...

The problem is that "value" and "growth" are also factors that describe characteristics, sometimes overly focused on just ratios and price relative to some fundamental characteristics, and are then used for marketing fund strategies. 

In reality, the term "value investing" can be pretty broad, and if it just means buying businesses at a discount to what you think they are worth... well that's what literally everyone is trying to do. As the other poster said, Asness has done a lot of work better defining the characteristics and dynamics of this that are more measurable, and coming with a more precise framework. 

More generally, investing is not about using a narrowed focus or philosophy, but understanding all of the approaches at play. The overlap at the end of the day when you really break down what an investor is trying to do, tends to be pretty similar. Some people found better success sticking to certain processes and frameworks for describing the world around them, and some didn't. 

There are so many ways to break down the lifecycle of a business, the price action of a stock over time vs. the fundamentals, and the best ways to capitalize on that. The better you understand the "market" (which is just lots of investors with their different views on how capitalize on names), the better you'll do. 

This is going to sound very unpopular, but my biggest learning this year is that the most important KPI for future performance is NT stock strength

Weak stocks trade badly whatever reason and earnings/valuation/multiples won’t resolve, vs. strong stocks will shrug off most issues and go up. This is especially true as stocks are more narrative driven (e.g. AI will kill X, if that is the narrative stock will never go up even if they beat and are cheap)

I have shifted to focusing on the stock strength first, and seeing if there is a reason (eg. Other investors think earnings will be 20% higher, put 30x on it stock is X% higher), and focusing on those stocks, vs.  stocks that are “cheap” but don’t have catalyst or reasons for people to buy 

I don't work in this space nor in HFs, though I do enjoy "value investing", or maybe more correctly, fundamentals-based investing, as a hobby, so take this with grain of salt.

Like you said, many of the ideas (such as contrarianism), are straightforward, and they are key to many different forms of investing. You could argue that L/S HFs take a lot of principles from fundamentals-based investing, albeit typically with a shorter-term horizon due to the nature of short positions.

I would argue that how "value investing" has been executed in the past won't be how it's executed in the future - but that seems inevitable for a field in which success is gained by knowing things others haven't noticed and developing better analytical processes. The basic principles, however (looking for businesses others haven't picked over, buying below intrinsic value, managing your emotions through ups and downs), will always have relevance, since they are by design timeless. Just following what great investors have written in books won't show you how to find the undervalued opportunities of the future, since by definition those opportunities are now picked over and thus probably have minimal alpha remaining. A great example is "net-net" stocks, pioneered by Ben Graham - stocks whose market value is less than their cash minus debt. You'd be pretty hard pressed to find such a stock anymore, because the markets now discover such inefficiencies. However, using the timeless principles with modern tools and an innovative methodology to find opportunities could definitely generate alpha. Especially given the rise of index investing, there must be some form of active management to make markets efficient in the first place, and I think LO "value investing" will continue to be an important part of that in the future.

So in short, yes, learning the basic principles and historical examples from books will give you the tools you need, but you need to be able to develop your own differentiated methodology for the present market situation to find the opportunities that exist now.

As for whether it's "boring" - idk, that's fairly subjective. It's pretty exciting to me. I'd just like to point out that "boring" investment opportunities are good, because that means others may not have picked over them yet.

As for whether they're "too safe" - fundamental investment strategies run a wide range of levels of riskiness, from risky microcap, deep value, and turnaround plays to low-risk mature & large cap businesses in stable industries.

Value investing is outdated in the sense that it’s so popular an approach that it no longer provides the edge that early VI’s had when they began with the strategy. When you have a large portion of the market replicating any trading strategy the edge disappears and gains decline. That said, it’s still a great way to learn the basics of valuation and then augment that understanding with other strategies. It’s similar to the old master artists needing to learn to realistically paint bowls of fruit before they went off and developed their own style of painting.

What about value investing through 'high conviction' ideas? If value investors suggest they are smarter than the market, is conviction just the same as ego? 

I'm gonna offer my perspective from a more seasoned investor (albeit more as a growth manager, although I have experience with value investing). A lot of people seem to talk about buying below intrinsic value or fundamental valuation etc. Actually, it is a bit simpler, and there is a reason in the industry buying low P/E; P/B; P/S; P/CF multiple companies is considered value investing and buying higher multiple companies is considered growth investing. Because what matters is where the value comes from in getting to the intrinsic value of a company (as a side note, every investor aims to buy stocks below their intrinsic value, no matter where they run a growth or value product).  

For a growth stock, a lot of the value comes from future revenues, cash flows etc, whereas for a value stock, a lot comes from current numbers and investors don't expect a lot of future growth for various reasons. So, if you are a growth investor, you try to find stocks with a lot of implied future growth where you think this growth is underestimated, and for value stocks, you try to find names where the market is too pessimistic of future prospects (you also have a better margin of safety for value stocks due to them being cheaper). So, in any market scenario, both a value manager and a growth manager can outperform. 

Still, as a general rule, if the market and economy continues to grow fast, it is harder to beat the market as a value manager, hence why that investment style has fallen our of favor, not because of crowding into the value names. The 2000's were great for value investing, it was a time where the S&P ended up roughly flat over a decade. Since the 2010s, growth investing has been much easier, and now many portfolio managers and analysts in the market have only seen that time in equity markets. 

Just as a final point, the proof of short terminism is given by one my fellow commentators above, when he talks about near term stock strength as most important. Actually, what that mean is that you are buying short momentum, which has worked great in the last 2-3 years, but is not such a clear factor over 15 years. Because when momentum works, it's great, but when it turns, it turns quickly and harshly.      

Not in HF but like others said, I feel like value investing is a little bit of a silly phrase. For example, I consider myself a deep value type of guy as I mentally have trouble paying for growth and I am a HUGE fan of the classic value guys.

But...

I am invested a few high growth SaaS companies (seed) because I felt the pricing for their rounds was very good relative to their growth and ability to toggle into being FCF+. To me, this is a "value" investment but it probably quacks like growth to most people.

We do a lot of distressed deals too that maintain excellent upside, to me, these are value!

Hi all - OP here! Not sure if you'll be notified or even see this message, but want to thank everyone for their respective insights. Found it very helpful and informative. 

Just buy good shit that is undervalued for whatever reason and will go up over time. It’s really not that deep. There’s no need to wax poetic over terminology like you’re a tenured finance professor or Bill Ackman writing quarterly letters

Everyone has their own philosophy of investing. Value investing is the idea of buying a strong company at a low price, because chances are, the broader community will realize the strength of the business. This does not mean buy a bad company that is cheap, or a mid company that is fair price, a great company that is overvalued, but a business that is truly remarkable in the industry.

Personally, you need to invest in companies that have strong fundamentals and a driven catalyst that can amplify those numbers.