Thoughts, ideas and insight from the top minds in the investment world
By Jack Forehand (@practicalquant) — We all have a tendency to want to put investing strategies into groups. That can sometimes be misleading, though. There are more investment products than I can count that use the word value in their name. But beneath the surface, many of those products couldn’t be any more different. Those differences can lead to substantially different outcomes in both the long- and short-term, so it is very important to understand… Read More
A recent article in The Wall Street Journal argues against giving up on value investing notwithstanding more than a decade of poor performance. It contends, however, that there’s more uncertainty about the strategy than there once was because: Value investors have never been “ground down for so long;” If investors understand value’s “great history,” then they are less likely to overreact to bad news, which would mean that value stocks would become less of a… Read More
A recent Forbes article suggests that true value investing requires a comprehensive approach to analyzing companies, not just a reliance on the price-to-book value. The article cites two comments made by Berkshire Hathaway CEO Warren Buffett in 2018 might “serve as the epitaph on the grave of the old era of value investing. The first, from Buffett’s 2018 letter to Berkshire shareholders, reads: “The fact is that the annual change in Berkshire’s book value…is a… Read More
In recent interview with CNBC, author, investor and Columbia University finance professor Joel Greenblatt talked about the challenges faced by value investors. “My students ask the same question,” he said, adding, “I’ve taught at Columbia for 23 years, and I always make a promise to my students on the first day of class—that if they do good valuation work, the market will agree with them. I just never tell them when.” Greenblatt underscored periods of… Read More
A recent article in The Wall Street Journal reports that General Electric Co.’s agreement earlier this month to sell a small but rapidly-growing biotechnology business for $21 billion “provided a moment of validation to a group of value-seeking stock buyers who plowed into the stock at the end of 2018 amid fears the company was collapsing.” The article reports that, in the fourth quarter of 2018, “investors who seek undervalued or misunderstood stocks turned toward… Read More
An article on the WisdomTree blog reports that the decade ending September 2018 was the “single worst decade in history” for price-book as a factor-sort of the market and asks, “Is value dead? Or do enthusiasts of the Russell Index family and the Fama-French Factor Model need to re-evaluate price-to-book ratio (P/B) as the primary metric used in defining value stocks?” The article cites comments by Fama-French in their seminal paper on factors: “there is… Read More
By Jack Forehand (@practicalquant) — This is the first interview in our new Five Questions series. Each month, we will take an in depth look at a specific issue in the market through a conversation with a leading expert in the area. The goal of this series is to move beyond the high-level discussion typically available in the media and to learn from someone who has studied the issue in depth. In our first interview, we… Read More
By Justin J. Carbonneau (@jjcarbonneau) — The $1.5 billion Mega Millions jackpot had a lot of people daydreaming about what they would do if they won such a windfall. With odds of about 1 in 250 million, you can almost guarantee with 100% certainty that you and everyone else you know that bought a ticket woke up on last Wednesday to be disappointed. Still, someone was lucky enough to become a multi-millionaire overnight. While luck… Read More
In the second quarter, David Einhorn’s Greenlight Capital sold tech stocks in order to buy retail shares, according to a public filing of its holdings as reported in a recent article in Barron’s. The article notes that the filing is merely a snapshot of the fund’s holdings at a moment in time and is therefore “an imperfect picture of Einhorn and Greenlight’s investing thesis.” But the fund’s second-quarter purchases of Gap, Best Buy, and TJX Companies,… Read More
A recent Barron’s article profiles value investor Fred Copper, lead manager of the Columbia Overseas Valuefund, who has learned that the best way to beat his benchmark (the MSCI EAFE Value index) is to “not invest like it.” Copper has adopted a more flexible definition of value than some of his peers, based on his belief that traditional style benchmarks for value funds include a significant amount of cyclicality–meaning they include stocks that are sensitive… Read More