Author Topic: Why I Am Not A Value Investor  (Read 19602 times)

TwoCitiesCapital

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Re: Why I Am Not A Value Investor
« Reply #10 on: October 09, 2013, 05:04:28 PM »
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.



premfan

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Re: Why I Am Not A Value Investor
« Reply #11 on: October 09, 2013, 05:26:56 PM »
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!

ERICOPOLY

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Re: Why I Am Not A Value Investor
« Reply #12 on: October 09, 2013, 06:13:28 PM »
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.

hyten1

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Re: Why I Am Not A Value Investor
« Reply #13 on: October 09, 2013, 06:33:01 PM »
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.


Palantir

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Re: Why I Am Not A Value Investor
« Reply #14 on: October 09, 2013, 06:33:15 PM »
^I think it is fair to say that "value investing" is a subset of "buy low, sell high".
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ERICOPOLY

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Re: Why I Am Not A Value Investor
« Reply #15 on: October 09, 2013, 06:44:00 PM »
"value" is implicit.  Otherwise "low" isn't actually low, and "high" isn't actually high.

TwoCitiesCapital

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Re: Why I Am Not A Value Investor
« Reply #16 on: October 09, 2013, 06:45:03 PM »
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.


ERICOPOLY

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Re: Why I Am Not A Value Investor
« Reply #17 on: October 09, 2013, 06:51:55 PM »
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".
« Last Edit: October 09, 2013, 07:18:19 PM by ERICOPOLY »

enoch01

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Re: Why I Am Not A Value Investor
« Reply #18 on: October 09, 2013, 07:02:39 PM »
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.

oddballstocks

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Re: Why I Am Not A Value Investor
« Reply #19 on: October 09, 2013, 07:09:32 PM »
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.
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