Author Topic: Does Value Investing "still" work?  (Read 5660 times)

LC

  • Hero Member
  • *****
  • Posts: 5248
Re: Does Value Investing "still" work?
« Reply #30 on: September 08, 2020, 08:42:39 AM »
Quote
msft has not been the most innovative company imo over last decade, but its platform is persistent.  of course, FB AMZN etc as well.  not value companies btw..

And why not?

Answering that question is a big part of this thread's topic.
MSFT, AMZN is not a "value" company? It's like the one true scotsman.

These two companies have created some of the most value, globally, in the last decade.
If anything, they are two of the most "valu"-able companies to ever exist!

"Lethargy bordering on sloth remains the cornerstone of our investment style."
----------------------------------------------------------------------------------------
akam| brk.b | goog | irm | lyv | net | nlsn | pm | ssd | t | tfsl | v | wfc | xom


writser

  • Hero Member
  • *****
  • Posts: 2235
Re: Does Value Investing "still" work?
« Reply #31 on: September 08, 2020, 08:57:04 AM »
I think that's why this discussion always gets confusing. What is 'value investing'? I think that is up for discussion. My definition (I'm not saying it is the correct definition): buying a company for less than intrinsic value. That can be Facebook at 200x earnings, if you have done your homework and think it is worth more. It can also mean: buy some crap at a low multiple, if you have done your homework and think it is worth more. In both cases, the key is: doing your homework. Thinking about the business, stakeholders, incentives and valuation.. The rest is mostly a philosophical discussion as far as I am concerned.

If you buy stocks blindly because they trade at low multiples you have not done your homework. If you buy stocks blindly because of growth prospects you have not done your homework either. Maybe these strategies worked in the past, maybe they didn't. Maybe they work now, maybe they don't. Personally I don't care too much.
« Last Edit: September 08, 2020, 09:24:15 AM by writser »
I'm sorry if I have offended you. Please contact this forum's safe space coordinator to work things out.

@thewritser

cherzeca

  • Hero Member
  • *****
  • Posts: 3505
Re: Does Value Investing "still" work?
« Reply #32 on: September 08, 2020, 11:31:44 AM »
"What is 'value investing'? I think that is up for discussion. My definition (I'm not saying it is the correct definition): buying a company for less than intrinsic value." 

well who wants to pay more than a company is worth? even growth bulls paying up for tsla think it is priced at less than "intrinsic value"...and so far they have been generally right...and I think we can all agree that tsla is not a value stock. 

for many investors who gravitate towards value, too much can go wrong with a growth story such as tsla.  I think some of what David Dreman said makes sense here...that value investing reduces risk of loss, and while at the risk also of giving up some upside, losses hurt more than gains feel good, and so weighting risk/reward to limit risk is an essential part of value investing...and it is fair to say that with the Fed so active (just read holds 14% of treasuries) and forecasting low rates as far as the eye can see, limiting downside is not as fashionable as it once was, generally speaking


writser

  • Hero Member
  • *****
  • Posts: 2235
Re: Does Value Investing "still" work?
« Reply #33 on: September 08, 2020, 12:24:29 PM »
well who wants to pay more than a company is worth?

Well, that's a good question. Frankly I think a ton of people don't give a shit about valuation. They either don't do it at all and just try to sell to the next fool or they do it in such a preconceived way that they might as well not have done it. Tesla is probably a case in point. But if you study and model the company carefully and you get to a valuation of $10k / share, sure, I guess you can call that value investing (though I personally think you should work on your business valuation skills). But others would probably not consider this value investing because they define it as:

- taking care of the downside, like you suggested.
- buying a bunch of companies in the lowest percentile with regards to a certain multiple.
- buying stocks that everybody else hates.
- buying a stock that's cheap according to a spreadsheet.
- jerking off while spouting Benjamin Graham quotes.

So, does it still work? Depends on who you ask and what their definition is. The self-proclaimed Tesla value investor with a price target of $10k certainly thinks value investing is working this year .. That's why I think the question is kind of pointless and the key to investing is to get the modelling right in specific situations. If Chou is losing money the interesting question is not: "is value investing still working" but: "why did Chou buy X, Y and Z, what did he think at the time and why didn't these ideas work out?" Of course those are hard questions that require actual work to answer so we don't do that and dabble around a bit here about whether Tesla is a value stock or not.

As an aside, I think a lot of value investors are nerds and so they gravitate to the 'mathy' situations, i.e. low multiples, tangible book value. So do I. However, if you studied Amazon carefully in 2002 and came to the conclusion that it was a superb company with enormous growth prospects and that it was way too cheap, I'd consider that value investing too. I guess that requires more business acumen, risk tolerance and self-confidence and less math so it attracts a different crowd. I think there is not a lot of cross-over between these two groups. The business guys piss on the valuation spreadsheets, the math nerds piss on the 500x PE multiple. In both cases that's a weakness though, not a strength.
« Last Edit: September 08, 2020, 12:46:19 PM by writser »
I'm sorry if I have offended you. Please contact this forum's safe space coordinator to work things out.

@thewritser

cherzeca

  • Hero Member
  • *****
  • Posts: 3505
Re: Does Value Investing "still" work?
« Reply #34 on: September 08, 2020, 12:59:13 PM »
@writser

well put, and your reference to AMZN leads me to another point.  Bezos is a genius. you may like him or not, but he is a genius. sometimes you have to invest in the jockey. but of course, contra, Neumann (WeWork) was and is not a genius.  great model, stupid execution...plus morality manque.  now where Musk fits into this spectrum is still up for grabs, but it seems he is trending to the Bezos pole (though still morality manque imo).  value investing does NOT like to invest in geniuses on the make.  but contrast Ms Barra and Mr Ford to Musk, and one has to wonder whether some exposure to the genius spectrum might do value investors some benefit...

thepupil

  • Hero Member
  • *****
  • Posts: 1968
Re: Does Value Investing "still" work?
« Reply #35 on: September 08, 2020, 01:19:46 PM »
To help make some of these distinctions, I use the terms

“Value factor investing” (Low P/B, high earnings/divvy yield, cheapest quartile)

“Intrinsic value based investing” (underwriting an asset/company’s value and buying below that, it’s PE / boom multiple whatever may be low or high)

investmd

  • Full Member
  • ***
  • Posts: 183
Re: Does Value Investing "still" work?
« Reply #36 on: September 09, 2020, 02:30:01 PM »
excellent points above by LC, Cherecza and Writser questioning why Amazon could not be a "value company". I like the comment also about value investing being "nerdy" and gravitating to "mathy" situations and missing out on the potential growth prospect.

Maybe what should be dead is the topic of "value" vs. "growth".  Maybe the markets have come to a new way of  "investing well" which blends assessing BOTH intrinsic valuation of assets and multiple of yesterday's earnings but also giving important consideration to earnings growth.

writser

  • Hero Member
  • *****
  • Posts: 2235
Re: Does Value Investing "still" work?
« Reply #37 on: September 09, 2020, 02:38:43 PM »
To help make some of these distinctions, I use the terms

“Value factor investing” (Low P/B, high earnings/divvy yield, cheapest quartile)

“Intrinsic value based investing” (underwriting an asset/company’s value and buying below that, it’s PE / boom multiple whatever may be low or high)

Yeah, that’s a sensible distinction.
I'm sorry if I have offended you. Please contact this forum's safe space coordinator to work things out.

@thewritser

Gregmal

  • Hero Member
  • *****
  • Posts: 4797
Re: Does Value Investing "still" work?
« Reply #38 on: September 09, 2020, 03:20:20 PM »
Posted in another thread...but figured this works here too. Seems to be a different year but the same story.

https://valuewalkposts.tumblr.com/post/138102275370/2015-letter-klarman-tell-investors-he-is

The “FANG” stocks (Facebook, Amazon, Netflix, and Google)
gained $415 billion of market cap through the end of the year, a 55% jump. Netflix stock surged 134% in 2015; Amazon 118%. Their average price-to-earnings ratio soared from 49 to 120 times, according to Bloomberg. As in the Nifty Fifty era, money managers seem to have decided they’d rather be seen failing conventionally than risk trying to succeed unconventionally. Last year, the 10 largest stocks by market cap in the S&P 500 gained nearly 23%, while the other 490 stocks were down about 3.5% on average.


“Value investors must be strong and resilient, as well as independent-minded and sometimes contrary. You don’t become a value investor for the group hugs. Indeed, one can go long stretches of time with no positive reinforcement whatsoever. Unlike some other fields of endeavor, in investing you can do the same thing as yesterday but achieve completely different reported results. In the long run, the research and analysis you perform should overcome market forces; the fundamentals ultimately matter. But in the short run, markets can trump effort and insight.”
« Last Edit: September 09, 2020, 03:23:40 PM by Gregmal »

D33pV4lue

  • Newbie
  • *
  • Posts: 31
Re: Does Value Investing "still" work?
« Reply #39 on: September 10, 2020, 11:31:02 AM »
I think that's why this discussion always gets confusing. What is 'value investing'? I think that is up for discussion. My definition (I'm not saying it is the correct definition): buying a company for less than intrinsic value. That can be Facebook at 200x earnings, if you have done your homework and think it is worth more. It can also mean: buy some crap at a low multiple, if you have done your homework and think it is worth more. In both cases, the key is: doing your homework. Thinking about the business, stakeholders, incentives and valuation.. The rest is mostly a philosophical discussion as far as I am concerned.

If you buy stocks blindly because they trade at low multiples you have not done your homework. If you buy stocks blindly because of growth prospects you have not done your homework either. Maybe these strategies worked in the past, maybe they didn't. Maybe they work now, maybe they don't. Personally I don't care too much.

Exactly how I would summarize it. Value investing is a philosophy centered around research and ultimately intrinsic value. It doesn't matter how you go from point A to point B (Low P/B, P/E, FCF). Whereas low P/B investing is a strategy the same way momentum is. I've commented this same theme before, traditional value investors haven't been able to adapt to more asset light business models. I am younger raised on traditional value investing but my personal philosphy skews more towards Joel Greenblatt value than Ben Graham. Markets change there are not many opportunities available to buy net cash companies. GAAP Accounting is a crappy indicator of "value" and hence P/B is rarely meaningful (exception insurance, etc.).   The only way to know what a company is worth is to do your homework.

cherzeca - I would argue that noone actually knows the intrinsic value of TSLA and it is pure speculation they may be right now but for the wrong reasons.