Author Topic: it's officially time to give up  (Read 1533 times)



Gregmal

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Re: it's officially time to give up
« Reply #1 on: July 21, 2020, 09:49:09 AM »
Value stocks absolutely work WITH PROPER CAPITAL ALLOCATION!

It is virtually impossible for a solid company trading at 5x or whatever to underperform over the long haul if they are repurchasing shares, paying dividends, and retiring(or using wisely) debt.

This said, theres a difference between a traditional value stock and a shitty company with bad management that is optimally "cheap"(cough GM).

BG2008

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Re: it's officially time to give up
« Reply #2 on: July 21, 2020, 09:54:56 AM »
Value stocks absolutely work WITH PROPER CAPITAL ALLOCATION!

It is virtually impossible for a solid company trading at 5x or whatever to underperform over the long haul if they are repurchasing shares, paying dividends, and retiring(or using wisely) debt.

This said, theres a difference between a traditional value stock and a shitty company with bad management that is optimally "cheap"(cough GM).

Totally agree that one should not conflate value stocks with "shitcos."  Just simply because something is trading at 5x P/E or 5x EV/EBITDA makes it a value stock.  You could have bought most traditional retailer or one of those subscale media companies and paid that little of a multiple.  I think value investors need to think about S in ESG.  Sustainability.  I bought a little more of companies like Univar during the selloff.  I don't think chemical distribution is going away.  I kept asking myself "why am I not buying something that is a 3-5x set up in a few years?  Still a double in my opinion.  I think if you can find stuff that grows EPS 2-4% organically a year for the next 10 years and it trades sub 10x P/FCF with a good industry back drop, you'll do pretty well. 


rb

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Re: it's officially time to give up
« Reply #3 on: July 21, 2020, 11:39:05 AM »
Value stocks absolutely work WITH PROPER CAPITAL ALLOCATION!

It is virtually impossible for a solid company trading at 5x or whatever to underperform over the long haul if they are repurchasing shares, paying dividends, and retiring(or using wisely) debt.

This said, theres a difference between a traditional value stock and a shitty company with bad management that is optimally "cheap"(cough GM).

Totally agree that one should not conflate value stocks with "shitcos."  Just simply because something is trading at 5x P/E or 5x EV/EBITDA makes it a value stock.  You could have bought most traditional retailer or one of those subscale media companies and paid that little of a multiple.  I think value investors need to think about S in ESG.  Sustainability.  I bought a little more of companies like Univar during the selloff.  I don't think chemical distribution is going away.  I kept asking myself "why am I not buying something that is a 3-5x set up in a few years?  Still a double in my opinion. I think if you can find stuff that grows EPS 2-4% organically a year for the next 10 years and it trades sub 10x P/FCF with a good industry back drop, you'll do pretty well.
Yes you will. But "If" is the operative word here. I just ran a screener:
Mkt cap>900M
10 yr Revenue CAGR >2%
10 yr Net Income CAGR >0%
5yr avg ROE >= 10%
P/E <= 10

I get 28 hits in the US. Most of them are energy and financials, some auto related stuff and some odds and ends. Hence the valuation conundrum from where we started.

scorpioncapital

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Re: it's officially time to give up
« Reply #4 on: July 22, 2020, 09:16:51 AM »
The problem is that less than 5x earnings is often a sign of the many problems that made it so cheap. Rarely will a company be solid and cheap. It's like one or the other.

stahleyp

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Re: it's officially time to give up
« Reply #5 on: July 22, 2020, 09:52:00 AM »
If interest rates are the same level 10 years from now, I wouldn't be surprised if value stocks keep underperforming. We are in uncharted territory, there's no reason to think that old rules work under this era. I don't doubt that value stocks will someday do better but I don't know if it'll happen until some discipline is back into the market (either through government involvement or otherwise).  I do think a rise in interest rates would help bring about some level of outperformance.

It's like if you know how to win a game, that works until the rules change.
Paul

Mark Jr.

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Re: it's officially time to give up
« Reply #6 on: July 31, 2020, 05:48:13 AM »
If interest rates are the same level 10 years from now, I wouldn't be surprised if value stocks keep underperforming. We are in uncharted territory, there's no reason to think that old rules work under this era. I don't doubt that value stocks will someday do better but I don't know if it'll happen until some discipline is back into the market (either through government involvement or otherwise).  I do think a rise in interest rates would help bring about some level of outperformance.

It's like if you know how to win a game, that works until the rules change.

Government involvement and central bank policy are the reason these markets are so irrational in the first place, don’t look to government invovlement to bring more discipline in. Discipline means letting bear markets unfold, and discipline means no bail outs. Do you see governments doing more or less of that?

We are at a secular extreme of low interest rates, correlation in the markets (everything moves together), passive flows and indexing. Even “value is dead” is at an extreme sentiment. Ironically, when value is dead, is when value investors should be stepping into it (to that end I’ve been considering Tobias Carlisle’s ETFs just as a general bet on value as a principle).

At some point, my thinking is there will be a mother of a mean reversion, I just don’t know what the catalyst will be, and am somewhat fearful for the various forms it can take. It will involve some kind of total functional breakdown globally, and/or a coordinated monetary reset, cold fusion, something.

Lately I’ve been hunting around micro and nanocaps and plan to be posting about them here. The CSE has yielded 2 or 3 interesting outfits.

SharperDingaan

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Re: it's officially time to give up
« Reply #7 on: July 31, 2020, 06:56:08 AM »
Seeing (and acting on) what is really there, versus what you want to see - is a double-edged sword.
We are on the edge of another global great depression - if too many people wake up to it at once, it will become reality.

Most textbooks hint at what to do. Do whatever is takes, for as long as it takes, and pick up the pieces later - wartime level (or higher), monetary and fiscal spend for years. They are just a little lacking on the mechanics at the extremes, and practice over theory. Now, look around you .....   

SD
« Last Edit: August 01, 2020, 10:39:11 AM by SharperDingaan »