Guest ajc Posted October 9, 2013 Share Posted October 9, 2013 Saw this the other day and thought maybe it was worth posting. Also, the potential it had for kicking off a relatively lively discussion admittedly seemed almost too good to turn down. Not sure I agree with a fair amount of what he's saying, but at the same time I also think there are probably a handful of cognitive biases his approach inadvertently stops him from succumbing to. To me, it seems like sub-consciously it has slightly more in common with 'real' value investing than a few other styles I'm aware of (if that doesn't sound dogmatic itself). Disclosure: This is not a plug for the book that's featured by the way, I just thought the blog was sort of interesting. I suppose I'll say however, that in my opinion it does look like it might turn out to be somewhat readable. Why I Am Not A Value Investor The header is a playful provocation: in truth I am probably closer to a value investor than other type. But I place little credence on the historical superiority of value investing (which has faltered in recent years anyway), and I have little sense of affiliation or identity as a value investor. It’s not quite that I don’t want to be a member of any club which will have me; rather it’s that that I’m nervous about a club which is now so crowded and where all the members think alike. The problem with value investing is that it is now a popular and widely followed investment philosophy. Analytical techniques which historically worked well when used by a small minority of investors will work less well as more investors use them. This is inherent to the nature of markets: a matter of arithmetic, not opinion... http://guythomas.org.uk/blog/ Link to comment Share on other sites More sharing options...
T-bone1 Posted October 9, 2013 Share Posted October 9, 2013 After getting over my initial shock at seeing the title of this thread, I have to say this sounds interesting. Price to book investing and even finding stocks via screening has gotten much more crowded and returns are probably no longer adequate. Most of the great value investments I have seen in the las year or two have been due to an analyst (or manager) finding some insight into the business, rather than into the balance sheet. Of course you could argue that Munger took Buffett in this direction long ago. Understanding the competitive advantages of Starbucks or American Express after the crash (I did neither) would have been a lot more profitable - and less work - than most of the singles, doubles and triples I have discovered (along with plenty of strikes). In any case, I look forward to this discussion. Thanks for posting! T-bone1 Link to comment Share on other sites More sharing options...
Palantir Posted October 9, 2013 Share Posted October 9, 2013 I think value investing is essentially a defensive strategy, not necessarily designed to produce great returns, but to avoid major mistakes, and I don't believe it is inherently superior to other styles, although there are some talented value investors. Sort of like in soccer how some managers (Mourinho, Herrera, Benitez) prefer counterattacking strategies, while others (Guardiola, Wenger, Van Gaal) build their games around highly attacking philosophies. Link to comment Share on other sites More sharing options...
matjone Posted October 9, 2013 Share Posted October 9, 2013 So basic value investing won't work anymore? If so, I am probably screwed because I am too dumb to do anything else. Link to comment Share on other sites More sharing options...
premfan Posted October 9, 2013 Share Posted October 9, 2013 I think value investing is essentially a defensive strategy, not necessarily designed to produce great returns, but to avoid major mistakes, and I don't believe it is inherently superior to other styles, although there are some talented value investors. Sort of like in soccer how some managers (Mourinho, Herrera, Benitez) prefer counterattacking strategies, while others (Guardiola, Wenger, Van Gaal) build their games around highly attacking philosophies. Your right its not superior. Value investing is a philosophy that reasonates with investors that have a certain temperament. The great investors trust there gut. Its the intuition that creates the win. Developing intuition is superior to any style or investing philosophy. Link to comment Share on other sites More sharing options...
JBird Posted October 9, 2013 Share Posted October 9, 2013 The problem with value investing is that it is now a popular and widely followed investment philosophy. Can someone please say this at the AGM? Buffett would laugh out loud if he heard this. Link to comment Share on other sites More sharing options...
siddharth18 Posted October 9, 2013 Share Posted October 9, 2013 So basic value investing won't work anymore? If so, I am probably screwed because I am too dumb to do anything else. +1 Link to comment Share on other sites More sharing options...
Guest valueInv Posted October 9, 2013 Share Posted October 9, 2013 I think value investing is essentially a defensive strategy, not necessarily designed to produce great returns, but to avoid major mistakes, and I don't believe it is inherently superior to other styles, although there are some talented value investors. Sort of like in soccer how some managers (Mourinho, Herrera, Benitez) prefer counterattacking strategies, while others (Guardiola, Wenger, Van Gaal) build their games around highly attacking philosophies. Your right its not superior. Value investing is a philosophy that reasonates with investors that have a certain temperament. The great investors trust there gut. Its the intuition that creates the win. Developing intuition is superior to any style or investing philosophy. Intuition? Boy, if only I could invest with intuition, I wouldn't have to do any hard work or analysis ;D Link to comment Share on other sites More sharing options...
premfan Posted October 9, 2013 Share Posted October 9, 2013 I think value investing is essentially a defensive strategy, not necessarily designed to produce great returns, but to avoid major mistakes, and I don't believe it is inherently superior to other styles, although there are some talented value investors. Sort of like in soccer how some managers (Mourinho, Herrera, Benitez) prefer counterattacking strategies, while others (Guardiola, Wenger, Van Gaal) build their games around highly attacking philosophies. Your right its not superior. Value investing is a philosophy that reasonates with investors that have a certain temperament. The great investors trust there gut. Its the intuition that creates the win. Developing intuition is superior to any style or investing philosophy. Intuition? Boy, if only I could invest with intuition, I wouldn't have to do any hard work or analysis ;D Intuition is the secret sauce, the xfactor, what separates the truly great. Intuition is illogical in nature. I know a lot of real estate investors that have amazing intuition. Hard work and analysis is logical . Mix it with a splash of intuition you win. Link to comment Share on other sites More sharing options...
merkhet Posted October 9, 2013 Share Posted October 9, 2013 The problem with value investing is that it is now a popular and widely followed investment philosophy. Can someone please say this at the AGM? Buffett would laugh out loud if he heard this. +1 Intuition is the secret sauce, the xfactor, what separates the truly great. Intuition is illogical in nature. I know a lot of real estate investors that have amazing intuition. Hard work and analysis is logical . Mix it with a splash of intuition you win. I think that what strikes many people as intuition is merely the clustering of previous thought and experience so that to both the internal and external audience, it arises as if it was a eureka moment. Hard work and analysis is present even if it does not seem like it. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted October 10, 2013 Share Posted October 10, 2013 I think a lot of it depends on how many talented people are in the game. Right now, you have a lot of talented people throwing a lot of resources in figuring things out. This is not a game that you play to win, because you won't. It's a game you play to not lose. It's a game to play to not lose because you are outmatched. I actually think times like this is exactly when value investing works best - you putter along with "subpar returns" when everyone is making big bucks, and then when they all blow up from making mistakes, you are the guy who survives and is able to profit from the wreckage. The time to be concerned about value investing, if ever, is once everything is blown up. At that point in time, the playing field has cleared and you have a little more leeway to be aggressive and to be able to take on more risk and seek higher returns (playing to win). Sure, people made good money buying conservative investments like JnJ or low P/B stocks at great prices in 2008. You probably made more if you bought Amazon, Apple, Google, etc. You know...the sexy, momentum stocks that typically carried a smaller moat, work in ever changing industries, less downside protection, and have spectacular booms and busts. Value investing will likely always work. I view it as a linear progression of generally lower returns during most years, and when shit hits the fan you are in a position to take a little more risk and make the parabolic profits that change the course of your investment portfolio for decades. Link to comment Share on other sites More sharing options...
premfan Posted October 10, 2013 Share Posted October 10, 2013 I think a lot of it depends on how many talented people are in the game. Right now, you have a lot of talented people throwing a lot of resources in figuring things out. This is not a game that you play to win, because you won't. It's a game you play to not lose. It's a game to play to not lose because you are outmatched. I actually think times like this is exactly when value investing works best - you putter along with "subpar returns" when everyone is making big bucks, and then when they all blow up from making mistakes, you are the guy who survives and is able to profit from the wreckage. The time to be concerned about value investing, if ever, is once everything is blown up. At that point in time, the playing field has cleared and you have a little more leeway to be aggressive and to be able to take on more risk and seek higher returns (playing to win). Sure, people made good money buying conservative investments like JnJ or low P/B stocks at great prices in 2008. You probably made more if you bought Amazon, Apple, Google, etc. You know...the sexy, momentum stocks that typically carried a smaller moat, work in ever changing industries, less downside protection, and have spectacular booms and busts. Value investing will likely always work. I view it as a linear progression of generally lower returns during most years, and when shit hits the fan you are in a position to take a little more risk and make the parabolic profits that change the course of your investment portfolio for decades. Awesome post! Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 10, 2013 Share Posted October 10, 2013 Buy low and sell high is an old fad, not a new one. I suppose you might question whether "value investing" is any different than "buy low and sell high"? Seriously, I don't think they are different. Link to comment Share on other sites More sharing options...
hyten1 Posted October 10, 2013 Share Posted October 10, 2013 what is value investing? i think people pigeon hole or like to categorize things too much, like eric said "buy low sell high", i don't see how that won't work EVER. Link to comment Share on other sites More sharing options...
Palantir Posted October 10, 2013 Share Posted October 10, 2013 ^I think it is fair to say that "value investing" is a subset of "buy low, sell high". Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 10, 2013 Share Posted October 10, 2013 "value" is implicit. Otherwise "low" isn't actually low, and "high" isn't actually high. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted October 10, 2013 Share Posted October 10, 2013 Buy low and sell high is an old fad, not a new one. I suppose you might question whether "value investing" is any different than "buy low and sell high"? Seriously, I don't think they are different. I think that generally captures the spirit but isn't descriptive enough. Value investing is the art of not losing money through this concept we call a margin of safety. It's the minimization of the chance for a permanent loss of capital. Buying low can achieve this as risk is a function of price - but you can also achieve this through buying quality companies at reasonable to high prices because it's predictable that they will keep on compounding value. Thus buying KO at 20x earnings can be just as much value investing as buying a cigar butt at 3x. This is mostly what I've been learning over my 6 years of exposure to value investing. It's all about limiting downside. The upside takes care of itself and you'll achieve decent returns. If you want amazing returns, you're most likely going to have a competitive edge and leverage (like Warren) or tweak your style to take more risk than you ordinarily would when the opportunity arrives and nobody else is around to do it. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 10, 2013 Share Posted October 10, 2013 Value investing is the art of not losing money through this concept we call a margin of safety. IMO, "margin of safety" is lipstick that an English major slapped onto "buy low". Link to comment Share on other sites More sharing options...
enoch01 Posted October 10, 2013 Share Posted October 10, 2013 I'm waiting for JBird to give us the Charlie munger quote about how all intelligent investing is value investing. But although it is intelligent, that doesn't mean it "works" day in and day out. Oh well. Link to comment Share on other sites More sharing options...
oddballstocks Posted October 10, 2013 Share Posted October 10, 2013 So basic value investing won't work anymore? If so, I am probably screwed because I am too dumb to do anything else. HAHA, I'm screwed as well. I agree with the spirit of the article that "value" now is buying the big stocks with moats at attractive prices rather than buying low P/B, low P/E, low EV..heck low anything. I offer a few thoughts: -Start a thread about some smallish profitable stock selling at 50% of BV, you'll get one or two responses. Start a thread about the value du jour that Buffett might like and you'll have 45 pages within a week. -While everyone seems to give lip service to the buy low P/B, valuey stocks not many do it, moat companies are seen as 'safer'. -All of the older funds that were doing the net-nets, low P/B stuff in the 1970s and 80s have grown and graduated to the Buffett value, moats etc due to size. Quick, name five mutual funds that are investing in the Graham/Schloss tradition. -I have thousands of readers on my blog, I blog exclusively about these little value stocks, I can't even begin to count how many people have said they enjoy reading me, but would never invest in anything I write about. I would conservatively estimate that's about 70% or more of my readers. -Look at most of the newer value investing books, they all universally disparage net-nets and low P/B stocks with comments like they were around in the 1930s when Graham was investing, but don't exist anymore. Personally, I could care less what label is given to me. I've found a style that's suited to my personality, and suited to my intelligence. Many of the threads on this board are way over my head, I will probably never price and option or know how to create these complicated trades, I'm not sure I could do a DCF without cheating and lookup up the formula. But if I see a little ignored company at 50% of BV I'm usually smart enough to pull the trigger, and at the end of the day that alone has served me well enough. Link to comment Share on other sites More sharing options...
CorpRaider Posted October 10, 2013 Share Posted October 10, 2013 Yeah, active investment strategies, especially value investing are definitely more popular than they were historically. Indexing is on the decline, obviously. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 10, 2013 Share Posted October 10, 2013 If only we had a 300 year old investor on the forum. He'd probably tell us it was called something else before it was called "buy low sell high". Then later it was called "margin of safety". And he would expect if we waited long enough a new breakthrough label for it would be adopted. The new generation always wants to challenge the orthodoxy and create something new of their own. Leave their own thumbprint on time. But the more things change, the more they stay the same. Link to comment Share on other sites More sharing options...
wisdom Posted October 10, 2013 Share Posted October 10, 2013 Value investing works because of human nature. I do not think that is about to change anytime soon. So, value investing should provide someone who has the right temperament an edge. Link to comment Share on other sites More sharing options...
merkhet Posted October 10, 2013 Share Posted October 10, 2013 plus ça change, plus c’est la même chose Link to comment Share on other sites More sharing options...
wisdom Posted October 10, 2013 Share Posted October 10, 2013 I also look at value investing like evolution. Asteroid hits - dinos are wiped out. Mammals that were food for the dinos and tiny survive and prosper leading to humans who come to dominate. Spoils go to the one who survives. This has been true time and again over billions of years. I do not think we could conduct a better experiment. Value investing discipline allows you to be that survivor. Link to comment Share on other sites More sharing options...
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