By Jack Forehand (@practicalquant) — When you look up a word in the dictionary, you expect to get a pretty clear definition of what it means. There obviously is gray area with some terms and some have multiple definitions, but in general a word’s definition will give you a pretty clear understanding of it. When it comes to investing, it is common to take that mentality and assume it also holds. The reality, however, is that… Read More
The man who made “safe and cheap” a value investing mantra passed away earlier this month, according to a recent Bloomberg article. Whitman created the Third Avenue Value Fund in 1990 and, according to the article, during his tenure (ending in 2012) the fund earned an average return of 12 percent (versus 9 percent for the S&P 500). In 1990, he was named Morningstar’s mutual fund manager of the year. Raised in the Bronx, Whitman used… Read More
By Justin J. Carbonneau (@jjcarbonneau) — If you Google “Ben Graham”, you will see that his name is synonymous with the value investing philosophy, and rightfully so. His book, Security Analysis, which was published in 1934 during the heart of the Great Depression, kicked off the era of classic value investing — that is, buying stocks that look cheap based on their assets or earnings. Graham’s investing philosophy was greatly influenced by the excesses seen… Read More
By Justin J. Carbonneau (@jjcarbonneau) — In 2005, Joel Greenblatt, a successful hedge fund manager, published an incredibly simple book on disciplined value investing. The book, The Little Book that Beats the Market, went on to be a best seller. In the book, Greenblatt developed a method that sought to combine Ben Graham’s deep value stock selection approach with that of Warren Buffett, who is mostly known for buying high quality and profitable companies at… Read More
A recent Forbes article offers comments and insights gathered in a recent interview with Michael Mauboussin, Director of Research at BlueMountain Capital Management (formerly Head of Global Financial Strategies at Credit Suisse): Mauboussin underscores two risks inherent in value investing: (1) buying a cheap stock that “deserves to be even cheaper”—a value trap; or (2) “shunning a statistically expensive stock that represents a good value.” While indexing is a reasonable path for most investors, it… Read More
Reporting on a Goldman Sachs study published a few months ago, a recent article from the Wharton School addresses the underperformance of value compared to growth strategies. The Sachs report, it says, claims that “value investors are seeing the longest dry spell since the Great Depression, and future returns will likely be lower than the historical average.” But the firm also acknowledges that assessing whether value strategies are in trouble depends on how one views… Read More
Value investing is in the doldrums, but billionaire fund manager David Einhorn says that eventually things will turn around. This according to a recent CNBC interview. Einhorn argues that the last time value saw a turnaround– after the dot-com bubble in 1999 when, he said, “everyone was talking about eyeballs as the new paradigm for investing”—it ended badly for momentum investors. He believes that value investing will rebound: “When it reverts,” he adds, “it tends to… Read More
Since the financial crisis, growth stocks have beaten value but, over the long-term, value will have its day in the sun. This according to a recent article in the Financial Post. “Over the long term, buying value and ignoring the shiny, well-liked stocks has paid off,” the article says, but the reversal in performance over the last decade has seen return-hungry investors gravitating toward dividend-payers and tech stocks and the “cheaper” parts of the market… Read More
The term “value investing,” is often used to described strategies “derived from simple ratios of accounting numbers to stock prices,” according to a recent article by the CFA Institute. “The ugly truth,” the article says, “is that many value funds apply dime-a-dozen strategies built on formulaic accounting ratios. Investors are better off looking for managers who deploy more comprehensive analysis to determine the intrinsic value of the underlying securities.” The article cites the book Security… Read More
A recent Morningstar article addresses the persistent lackluster performance of value stocks and whether it is a temporary situation or something more permanent. According to participants in this year’s Morningstar ETF Conference, the article reports, “it’s never easy to be a value investor,” and “value stocks today are behaving just as they should.” John West, managing director at Research Affiliates, shared his view that, “The world is unfolding exactly as it should,” underscoring that most… Read More