Value Investing is Dead

Benjamin Graham in an Interview near the end of his career : 

"I am no longer an advocate of elaborate techniques of Security Analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent, I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

I don't believe in EMH but with how efficient markets are today I don't believe that one can generate high returns while finding mispriced assets. Even Buffett did not come to be who he is today buy investing in finding undervalued stocks or investing in wonderful companies as he does today, he just has to because no other strategy has enough liquidity. The one major inefficiency in the market is the inability of wall street being able to value hypergrowth. Pure growth investing is where I think the alpha comes from. That and trading momentum which is the simplest strategy and the one that has generated the highest returns in the past 10 years. If someone just follows some basic rules (given their account size is not massive) then they can easily produce market beating returns, this is actually what I have been doing. What do you guys think, is all of the money to be made in pure growth and/or momentum or does value investing still work

 

This question will continue to be asked for years and people will choose to believe what they want. Depending on your source, every single investing style has been equally “dying” and “thriving” simultaneously at one time or another. I personally believe that value still has a place in the asset management space. There are clear mispricings in equities in current markets, and if catalysts can be identified that will help the market realize the mispricing, value can be realized.

 

Will the next 10 years of returns be the same as the last? and before you answer and say ‘obviously not’ re think and ask yourself what macro trends are happening right now and where might we be in the economic cycle as well as the long term debt cycle. Another way to put it is where do you think interest rates will be in 5 years, how does this differ compared to last 5? Reason i’m asking these q’s is that people always get caught up in the short term and never think about big picture stuff. Short answer: certainly NOT dead

 
Most Helpful

The key issue with traditional value investing is that it prioritizes select financial metrics first without laying out the method to fundamentally research the underlying key drivers.  It is purely the finance part of investing, but not the actual fundamental research.  It likely never had the intention to do so when it was published as well, given the industries available at the time of publication can be analyzed properly with the tools presented at the time.  There was an article in The Economist about why traditional value investing has lagged and the reasons behind it, worth the read.  

When the concept of value investing first came out, the global economy was very different from what it is today.  

Investing is not about ratios, it is compounding capital through ownership in a company that belongs in an industry that has different competitive landscapes, toggles, and drivers.  

The one concept that has remained consistent in value investing that almost all fundamental investors abide by is:

1.  Buying a security when it is undervalued, selling when it is overvalued, or simply buy low, sell high, while the method to derive an intrinsic value of a stock has changed and is constantly evolving.  

For someone that's able to derive an intrinsic value for a wholly new business model, they can easily justify buying the stock as a value stock.  For someone who can't, it's not "expensive", it's just they don't have the knowledge and experience yet to value the company properly.

For the newly initiated, it's nice to read through classics, but also beware of its pitfalls.  The concepts presented in the original school of value investing and its outdated set of rules may create a false sense of security and inhibit one's ability to generate returns in this day and age.  

 

Qui quam autem velit mollitia. Culpa quisquam aut fugiat tempore.

Consequatur aut repellendus voluptates ipsam. Ullam molestias vel nihil tempore maxime. Rerum nihil occaecati sequi doloribus sed et voluptatem.

Dignissimos repellendus cum eligendi est quidem. Tenetur quia fugit vel. Nam impedit sequi eos praesentium quia commodi debitis. Consectetur tempore quis sapiente. Reprehenderit omnis molestias esse ea est sed quia. Odit ducimus ut aut repudiandae non neque.

Omnis ad earum magni et commodi. Corporis suscipit sint doloremque dolor voluptatem sed.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
CompBanker's picture
CompBanker
98.9
7
kanon's picture
kanon
98.9
8
GameTheory's picture
GameTheory
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”