Does Value Investing "still" work?

[investmd]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

[Guest cherzeca]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

I would just add that from my reading of value investing literature, there is an emphasis on limiting the downside.  growth investing looks with more emphasis on exposure to upside. now, how does a value investor limit the downside? you can look to all of the metrics discussed, such as low P/E, low P/B etc, look for a moat to limit competition, etc...all of these metrics can be debated as to how effective they are, but they simply are filters that value investors use to try to achieve some modicum of safety.  probably the best filter is to invest in a great business, but this is in the eye of the beholder.  Buffett once said that he thought Sees Candies was a great business since whenever some guy bought the product, he got a kiss from his wife/GF etc.  so I suppose there are many paths....

[Gregmal]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

I would just add that from my reading of value investing literature, there is an emphasis on limiting the downside.  growth investing looks with more emphasis on exposure to upside. now, how does a value investor limit the downside? you can look to all of the metrics discussed, such as low P/E, low P/B etc, look for a moat to limit competition, etc...all of these metrics can be debated as to how effective they are, but they simply are filters that value investors use to try to achieve some modicum of safety.  probably the best filter is to invest in a great business, but this is in the eye of the beholder.  Buffett once said that he thought Sees Candies was a great business since whenever some guy bought the product, he got a kiss from his wife/GF etc.  so I suppose there are many paths....

 

Personally, I've noticed that it seems the way in which most people apply "value investing" philosophies, encourages continuing to stick with things that dont work. If you've held something for 3+ years and haven't made money, in a crazy blow out bull market like we've seen where almost everything under the sun is making money, you are just flat out wrong and should move on. Sure, it may "eventually" come around, but why wait for a perpetual disappointment to change its behavior, when pretty much everything else is going to reward you today? Blackberry is one that comes to mind in this category. You could have literally held anything else in that space and done well instead of sitting around, hoping and waiting for the tide to turn on a reclamation project.....

[Spekulatius]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

I would just add that from my reading of value investing literature, there is an emphasis on limiting the downside.  growth investing looks with more emphasis on exposure to upside. now, how does a value investor limit the downside? you can look to all of the metrics discussed, such as low P/E, low P/B etc, look for a moat to limit competition, etc...all of these metrics can be debated as to how effective they are, but they simply are filters that value investors use to try to achieve some modicum of safety.  probably the best filter is to invest in a great business, but this is in the eye of the beholder.  Buffett once said that he thought Sees Candies was a great business since whenever some guy bought the product, he got a kiss from his wife/GF etc.  so I suppose there are many paths....

 

Personally, I've noticed that it seems the way in which most people apply "value investing" philosophies, encourages continuing to stick with things that dont work. If you've held something for 3+ years and haven't made money, in a crazy blow out bull market like we've seen where almost everything under the sun is making money, you are just flat out wrong and should move on. Sure, it may "eventually" come around, but why wait for a perpetual disappointment to change its behavior, when pretty much everything else is going to reward you today? Blackberry is one that comes to mind in this category. You could have literally held anything else in that space and done well instead of sitting around, hoping and waiting for the tide to turn on a reclamation project.....

 

Don’t all your REIT holdings fit this bill perfectly?

[Gregmal]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

I would just add that from my reading of value investing literature, there is an emphasis on limiting the downside.  growth investing looks with more emphasis on exposure to upside. now, how does a value investor limit the downside? you can look to all of the metrics discussed, such as low P/E, low P/B etc, look for a moat to limit competition, etc...all of these metrics can be debated as to how effective they are, but they simply are filters that value investors use to try to achieve some modicum of safety.  probably the best filter is to invest in a great business, but this is in the eye of the beholder.  Buffett once said that he thought Sees Candies was a great business since whenever some guy bought the product, he got a kiss from his wife/GF etc.  so I suppose there are many paths....

 

Personally, I've noticed that it seems the way in which most people apply "value investing" philosophies, encourages continuing to stick with things that dont work. If you've held something for 3+ years and haven't made money, in a crazy blow out bull market like we've seen where almost everything under the sun is making money, you are just flat out wrong and should move on. Sure, it may "eventually" come around, but why wait for a perpetual disappointment to change its behavior, when pretty much everything else is going to reward you today? Blackberry is one that comes to mind in this category. You could have literally held anything else in that space and done well instead of sitting around, hoping and waiting for the tide to turn on a reclamation project.....

 

Don’t all your REIT holdings fit this bill perfectly?

 

Comparing this after a major reset is silly. SPG and ESRT I just started buying this year; ESRT I am still buying. If in 3 years or so I haven't made money, then yea, I'd probably consider my investments a failure and a waste of time. I have a hard time doing so after a quarter or two. A better example, although not purely RE/REIT would be MSG(as in the CVC spinoff). Even with the COVID decline, thats printed money for shareholders over the past 3-5-10 yr or whatever timeframe. Same with ARE.

 

Blackberry stuck out to me because it's a cultish value stock, in a sector where everything is going bonkers. Different than someone investing in real estate or energy right now...in those respects, you know what you're getting into as it's sector wide headwinds in classically cyclical business/asset classes.

 

The post above probably came off as supportive of a "buy whats popular" strategy, which is not what I was trying to convey. Better said, dont go buying into problems you dont need to because you are a cheapskate. It would be like going after PEI or CBL instead of SPG. There is a quality component to things and often people look past quality in search of value. If something is working, the top notch companies will do well. When you get into reclamation projects, many of the ingredients for underperformance are glaring yet overlooked frequently.

 

EDIT: I'd add that a better example in terms of what I own would probably be MSG Networks.

[mattee2264]

In the past a typical value investment had the attractive combination of a cheap price and average quality and long term prospects usually as a result of temporary company or industry problems that were likely to resolve themselves in due course. And you would be able to diversify to a sufficient extent that you wouldn't need every situation to work out and you could still beat the market.

 

These days to get a cheap price you either have to accept poor quality and/or poor or very uncertain long term prospects often involving some kind of existential threat. And often you have to embrace cyclicality with all the attendant timing risks. So the average result is less favourable and selectivity is required but a lot of this stuff is too hard and even experienced professional value investors often get it wrong. And the problem with value investing is there is limited potential upside so losers dominate your results and therefore mistakes can be incredibly costly.

 

And of course interest rates are a factor. The spread in P/E multiples for growth stocks in low and high interest rate environments is much wider than for value stocks. If there is a proper tightening cycle then multiple compression will be far less damaging to value stocks than it will be for growth stocks. And then the limitations of growth investing will become more obvious i.e. growth doesn't last forever and multiple compression as growth slows and interest rates rise can punish returns. But while that would reduce returns from growth investing for returns to value investing to improve I think you still need prices to get cheap enough that you can get back to that old combination of cheap price average quality/prospects.

 

 

[D33pV4lue]

Going through the posts on this thread, my summary is that consensus is that 1) basic underlying principle of identifying a business that will return your money and more to you in future is just good investing & 2) perhaps there has been some evolution in "value investing" to not only focus on P/E, P/B, assets and debt but also place emphasis on potential to grow earnings. Does that make sense?

 

I would just add that from my reading of value investing literature, there is an emphasis on limiting the downside.  growth investing looks with more emphasis on exposure to upside. now, how does a value investor limit the downside? you can look to all of the metrics discussed, such as low P/E, low P/B etc, look for a moat to limit competition, etc...all of these metrics can be debated as to how effective they are, but they simply are filters that value investors use to try to achieve some modicum of safety.  probably the best filter is to invest in a great business, but this is in the eye of the beholder.  Buffett once said that he thought Sees Candies was a great business since whenever some guy bought the product, he got a kiss from his wife/GF etc.  so I suppose there are many paths....

 

Being disciplined. Everything is about Odds (Against the Odds by Peter Bernstein is  one of my favorite books). Shifting the odds into your favor long term will help limit downside. I.e. investing in stocks with 2:1 upside vs downside not 1:1. People make mistakes identifying mistakes and cut losses quickly is an extremely important skill IMO not sitting and waiting or doubling down. Do a post-mortem identify what what wrong and don't make the mistake again.