Author Topic: Does Value Investing Have a Marketing Problem?  (Read 777 times)

RVP

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Does Value Investing Have a Marketing Problem?
« on: August 11, 2020, 01:17:39 AM »
We all know the performance divergence between "growth" and "value" investing has been pretty wide for a while now, and that's only been exacerbated in 2020.

There have been so many explanations for this, just to list a few:
- Growth stocks have fundamentally and consistently blown past expectations, allowing them to work through initially "high" multiples
- The internet has brought down many barriers to entry, allowing growth to scale faster and cheaper
- Low interest rates benefit cash flows that may be far out in the future
- Huge amounts of capital printed globally create a very robust and excessive funding environment for all sorts of ventures

While all these explanations are sound, I don't see any reason why value investing can't benefit from the same trends. What's stopping your [boring business name here] from communicating like how [exciting startup business name here] does, and potentially also obtaining high multiples/ generous funding?

I'm not talking about businesses in secular decline. I'm talking about the many businesses around you that are quietly chugging along just fine (and that value investors love to swarm around), but maybe not exhibiting hyper top-line growth (because they choose to grow profitably/ responsibly).

If a startup can raise unfathomable amounts of capital at sky high valuations by promising super growth and future dominance, why can't an already dominant established player (whose lunch the startup may be eyeing) point to what they've built, while also planting seeds of exciting promise to come in the minds of potential investors?

A lot of people attribute Buffett's early success to his incredible capital allocation (completely agree) and much easier environment (somewhat agree). But if memory serves me correctly, wasn't Buffett also a master at creating an incredible image for himself and his companies? Was value investing truly the greatest during Buffett's time because of the opportunity set, or was value investing's incredible stretch also aided by a young, hungry Buffett able to captivate the minds of so many (just like how Bezos/ Musk was able to do in more recent times)?

Long story short: is the divergence between value and growth investing largely a symptom of the group of growth investors knowing how to tap the mainstream psyche way better than the current group of traditional value investors?   
 


mattee2264

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Re: Does Value Investing Have a Marketing Problem?
« Reply #1 on: August 11, 2020, 04:27:45 AM »

  There has always been a divide between "glamour" stocks and "value" stocks and that hasn't prevented value outperforming over successive market cycles. And during rare times when companies in mature industries such as telecoms and energy suddenly become high tech and attract a lot of capital things don't end well e.g. dot com boom and bust and shale boom and bust. Reason being that too much capital results in too much competition and overcapacity.

 When value investing works it is because it exploits negative sentiment towards industries and individual companies that usually reverses because the problems are either cyclical or temporary or have little impact on earnings power. These days unfortunately negative sentiment is usually justified because there are a lot of industries facing disruption and other secular challenges.

 This market cycle where I think you are seeing the outperformance is because of the unprecedented quality of a lot of the dominant growth companies and the extent of their runways. Their moats are massive and their addressable markets are huge and they enjoy increasing returns. And they are disrupting a lot of the traditional industries where value companies reside so people scooping up low P/B and low P/E stocks rather than seeing reversion to the mean are seeing earnings and book values evaporate!

 Buffett has never been promotional in the sense of talking his book. Certainly in his early days he often took an activist approach to realize value when the market didn't cooperate. But he wouldn't even tell his own partners what he was invested in! And there are stories about how his friends would want to know what he was buying but he never told them because he didn't want the price to go up in case he wanted to buy more! He only became a household name much later on and while he helped to popularize value investing we can see from the records of people like Graham and Schloss it worked perfectly well before Buffett became a media darling.

 

RVP

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Re: Does Value Investing Have a Marketing Problem?
« Reply #2 on: August 11, 2020, 08:59:37 PM »
Completely agree with the above comments 100%. If I were to explain value investing to someone, it'd be along the same lines. Temporary impairment, mean reversion, buying $1 for less than that, etc. And I think that's the problem.

At least for me, whenever I share the merits of value investing to non Graham and Doddsville folks, I usually get very bored stares (emphasis very). These are people who work on wall street, who own businesses, finance students. Basically a group that tends to know their way around numbers. Yet when they hear about "cutting-edge" developments (new online marketplaces, robots, modern medicine, etc.), their eyes light up.

I recognize that value investing's generally "unexciting" nature is an age old issue, but I really do think the divergence has been exacerbated far longer than most are accustomed. And I do think its inability to capture today's mainstream attention (even for a medium moment) is a problem, especially in a world where we have more things than ever vying for our attention. Value works, but after long stretches of time passes... something about markets staying irrational longer than you can stay solvent.   

Buffett may not have talked his book, but I think the veil/ mystique he created was just as effective a method (if not more) of putting value investing right there in the psyche of the masses. Everyone wanted to know how he did it, and much energies and resources were mustered to try to pierce the veil. You can argue that that's made value investing much less attractive (too much competition/ overcapacity), but you could also make the case that the marketing for the strategy was superb and therefore any divergence was shorter and performance fantastic.

I just don't see an equivalent energetic, consistent, larger than life value person today. Today it just seems like the growth group (and their captivating icons) trounces the value group in regards to marketing, which I'm convinced has had a meaningful impact on extended performance divergence.