Will the true value please stand up?

[Jurgis]

https://www.wsj.com/articles/want-to-invest-in-a-true-value-fund-good-luck-finding-one-11549249860?mod=nwsrl_journal_reports_health_care&cx_refModule=nwsrl

 

Disclaimers: I don't invest in true value . This is posted for fun and discussion only. Maybe this explains (not-true)value fund underperformance. Maybe it doesn't. Have fun.  8)

[SHDL]

I haven't read the paper but it sounds interesting.  A bit surprising that these facts weren't known until 2019...

[Spekulatius]

I have been listening to a lot of value investing podcasts and most practitioners seem to believe that price /book has stopped working for some time ago. Quite a few others believe that even PE or even any quantitiave metric has stopped working, at least for mid and large caps.

 

I think there is evidence that this is probably correct in most market segments. There are probably pockets in the market (microcap) or countries where these old heretics for value stocks still work.

 

It is probably more important to understand and evaluate the business now, rather than looking at metrics. looking at metrics now is really easy, but understanding the business is harder and there is a better chance that a business is misunderstood rather than a business with great great value metrics is overlooked.

[porcupine]

It is probably more important to understand and evaluate the business now, rather than looking at metrics. looking at metrics now is really easy, but understanding the business is harder and there is a better chance that a business is misunderstood rather than a business with great great value metrics is overlooked.

 

^ Spot on.

[Jurgis]

You guys realize that the article claims that what you propose is what value funds are doing and that's what underperforms? While no funds do the value-metrics approach and that's what presumably outperforms?

 

Or nobody read the article?

[writser]

Or nobody read the article?

 

We are on the internet. What do you expect us to do??

[Spekulatius]

Or nobody read the article?

 

We are on the internet. What do you expect us to do??

 

Haha,  very true. I read the article and it’s true that the Aegis fund seems to run a true value strategy (with microcaps) and it’s performance has been dreadful. So, I am not sure the authors claim about the performance of the strategy is correct based on the examples provided. Either way, the studies about low P/B were I think academic study and not based on mutual fund performance.

[Guest]

Aegis Value's performance has been dreadful?

 

It depends on the data you're looking at but here it is over the past 10 years (granted this is near the bottom):

 

https://www.morningstar.com/funds/XNAS/AVALX/quote.html

 

Since inception in 1998 a $10,000 investment is worth $65,780 vs $37,057 for S&P 500

 

At the 5 year (gotten crushed) and 15 year numbers aren't good though (under performs both S&P 500 and category peer)

[LC]

Low rates have previously made it difficult to find "true value" - asset price expansion has obscured traditional earnings multiples. This may be changing as rates are creeping up...the tide is going out.

 

I also prescribe to Spekulatius' final bullet point.

 

Value never went away over the past five years: however it was seen in a few different places. 1) The regulated banks and other crushed companies (FCAU comes to mind) rebounding from the crisis. 2) "Growth" "FAANG" whatever you call them - they mostly lived up to the hype. Apple, Google, Amazon all have done well and provided tremendous value to customers/society/investors.

 

I think it is important to remain flexible and not religiously adhere to a certain view of the future. The windshield is foggy but we must make out best guess.

[Guest cherzeca]

what interests me is a company that has a long runway and addressable market that looks cheap, on assumption that company can be at least moderately successful in addressing that market.  added benefit if there is something resembling a moat that serves to inhibit competition and reduce risk. you can also throw in a potential "catalyst", but I have found that catalyst predicting is plenty hard.

 

this to me is the type of value I am looking for, though most value investors believe I am referring to GARP.