Good time to do value investing?

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steve321
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Good time to do value investing?

Post by steve321 » Thu Sep 06, 2018 9:56 am

I had this thought today - don't know whether it makes any sense at all, so I wanted to share it with you here for comments/criticism.

Basically I've read that value investing has tended to work over the long haul, but the outperformance comes with the price of long periods of underperformance. That underperformance is one of the things that should make value investing continue to work, because not everybody will stick with it and accept the tracking error.

So basically, if you look at things now, value companies have done worse than growth ones for perhaps 10 years or more in the US; and value regions (like Emerging markets that GMO keep recommending) have done poorly. So there has been a long underperfomance of value relative to growth. And if value over the long term should beat growth, does it not mean that now is a good time to invest in value, since it's all the more likely to spring back sometime soonish? (in order for the long term performance to be superior to growth, as it has historically been).

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Re: Good time to do value investing?

Post by Call_Me_Op » Thu Sep 06, 2018 9:58 am

No. This is a form of market timing. If you decide to tilt toward value it should be for reasons other than you thinking it is a good time to do it.
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Re: Good time to do value investing?

Post by nedsaid » Thu Sep 06, 2018 10:04 am

I have been saying this for 3-4 years now but the markets won't listen. The impossibility of knowing when markets will turn from a growth phase to a value phase makes market timing an ineffective strategy. This Large Growth market could continue for quite a while. So if you are going to Value tilt, you better have a long term commitment to it. When the last Value investor throws in the towel and sells his or her Value investments in utter disgust, then this will turn around. Pretty much, I am saying pick a good strategy and stick with it.
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Re: Good time to do value investing?

Post by Random Walker » Thu Sep 06, 2018 10:08 am

nedsaid wrote:
Thu Sep 06, 2018 10:04 am
I have been saying this for 3-4 years now but the markets won't listen. The impossibility of knowing when markets will turn from a growth phase to a value phase makes market timing an ineffective strategy. This Large Growth market could continue for quite a while. So if you are going to Value tilt, you better have a long term commitment to it. When the last Value investor throws in the towel and sells his or her Value investments in utter disgust, then this will turn around. Pretty much, I am saying pick a good strategy and stick with it.
Agree. If you like the idea of value tilt and willing to commit to it long term, go for it. The fact that this may end up being an opportune time to start the strategy just might be a little icing on the cake.

Dave

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Re: Good time to do value investing?

Post by nisiprius » Thu Sep 06, 2018 10:11 am

Interestingly, Vanguard was one of the first companies to introduce factor-based mutual funds, the Vanguard Growth Index Fund (VIGAX) and the Vanguard Value Index Fund (VIVAX).

This forum is loosely focussed on "investing advice inspired by John C. Bogle." In his 2012 book, Clash of the Cultures, John C. Bogle wrote this (my boldfacing):
1992: Growth and Value Index Funds. Persuaded by the proven success of "all-market" indexing, we determined to offer separate growth and value index funds. When Standard & Poor's at least created these indexes in 1992, we quickly followed suit. The idea was to offer a growth index fund for an investor's accumulation phase and a value index fund in his distribution phase. Alas, too many investors used these portfolios to speculate on which market sector would do best in the future (a loser's game, of course), and their potential has yet to be realized.
Meanwhile, out there in factorland, there is something of a debate between Cliff Asness (founder of AQR) and Rob Arnott (of Research Associates). I think Arnott is for market timing factors and Asness is agin' it. Or maybe it's the other way around. You can do your own web search for this.
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Re: Good time to do value investing?

Post by acegolfer » Thu Sep 06, 2018 10:13 am

No. What we learned about value investing is based on empiricals (not on fundamental theory). Using past history, we found value investing performed better than what CAPM indicated. To justify this value anomaly, we came up with many reasonable risks. You mentioned 2 of them. If you use 1 justification to conclude one should value invest now, you are overlooking all others. I suggest you do more research on why value has a premium before value investing.

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Re: Good time to do value investing?

Post by nedsaid » Thu Sep 06, 2018 10:16 am

Random Walker wrote:
Thu Sep 06, 2018 10:08 am
nedsaid wrote:
Thu Sep 06, 2018 10:04 am
I have been saying this for 3-4 years now but the markets won't listen. The impossibility of knowing when markets will turn from a growth phase to a value phase makes market timing an ineffective strategy. This Large Growth market could continue for quite a while. So if you are going to Value tilt, you better have a long term commitment to it. When the last Value investor throws in the towel and sells his or her Value investments in utter disgust, then this will turn around. Pretty much, I am saying pick a good strategy and stick with it.
Agree. If you like the idea of value tilt and willing to commit to it long term, go for it. The fact that this may end up being an opportune time to start the strategy just might be a little icing on the cake.

Dave
On the other hand, this is as good of time as any to adopt a value strategy. Lots of regret out there. I cried in my root beer over New Year's Day weekend over trailing Taylor Larimore's 3 fund portfolio in 2017. Much of it was due to my Value tilts. On the other hand, I was the man in 2007 as Smaller stocks and Value did well from 2000-2007. International did well during that time as well. As did REITs. Even my earnings and price momentum funds at American Century were doing well.

Value is hated around here. International is hated around here. REITs are hated here. TIPS are hated here. That tells me that my commitments will be rewarded. Just don't know when. Such outperformance can happen in unpredictable and violent upward bursts. In other words, you need to be on the train when it leaves the station.
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Re: Good time to do value investing?

Post by livesoft » Thu Sep 06, 2018 10:23 am

The OP has misinterpreted the recent historical record. Value has had some great performances recently.

Morningstar.com tells me that IJS (small-cap value index) was up 39% in 2013, 31% in 2016, more than 10% in 2017, and more than 13% so far in 2018.

There is a thread on asset class performance started by Siamond with those quilt charts that should be looked at.

So ... invest in both value and growth. Market timing switching some (not all!) of your money as needed and get the benefit of both of them at different times.
Last edited by livesoft on Thu Sep 06, 2018 10:24 am, edited 1 time in total.
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Re: Good time to do value investing?

Post by steve321 » Thu Sep 06, 2018 10:23 am

nedsaid wrote:
Thu Sep 06, 2018 10:16 am
Just don't know when. Such outperformance can happen in unpredictable and violent upward bursts. In other words, you need to be on the train when it leaves the station.
so basically I take it there's no way to relate it to macroeconomic conditions? Though I heard that in a recession value would do worse. So perhaps there are macroeconomic scenrios where we can say it'll do better?

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Re: Good time to do value investing?

Post by TJSI » Thu Sep 06, 2018 10:24 am

Steve321,

Value stocks earn their reward when they are oversold. The outperformance is relative to their underlying value not compared to growth stocks. Its quite possible that growth is oversold and value stocks are also oversold but not as much. Maybe they are near their true value.

Value stocks earn excess returns by recovery of valuations and compounding of dividends at depressed prices.


TJSI

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Re: Good time to do value investing?

Post by steve321 » Thu Sep 06, 2018 10:26 am

livesoft wrote:
Thu Sep 06, 2018 10:23 am
The OP has misinterpreted the recent historical record. Value has had some great performances recently.

Morningstar.com tells me that IJS (small-cap value index) was up 39% in 2013, 31% in 2016, more than 10% in 2017, and more than 13% so far in 2018.

There is a thread on asset class performance started by Siamond with those quilt charts that should be looked at.
Not sure about small, but in the US large growth has outperformed large value over the last 10yrs as far as I understand, and as Nedsaid has also said above.

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Re: Good time to do value investing?

Post by nedsaid » Thu Sep 06, 2018 10:27 am

nisiprius wrote:
Thu Sep 06, 2018 10:11 am
Interestingly, Vanguard was one of the first companies to introduce factor-based mutual funds, the Vanguard Growth Index Fund (VIGAX) and the Vanguard Value Index Fund (VIVAX).

This forum is loosely focussed on "investing advice inspired by John C. Bogle." In his 2012 book, Clash of the Cultures, John C. Bogle wrote this (my boldfacing):
1992: Growth and Value Index Funds. Persuaded by the proven success of "all-market" indexing, we determined to offer separate growth and value index funds. When Standard & Poor's at least created these indexes in 1992, we quickly followed suit. The idea was to offer a growth index fund for an investor's accumulation phase and a value index fund in his distribution phase. Alas, too many investors used these portfolios to speculate on which market sector would do best in the future (a loser's game, of course), and their potential has yet to be realized.
Meanwhile, out there in factorland, there is something of a debate between Cliff Asness (founder of AQR) and Rob Arnott (of Research Associates). I think Arnott is for market timing factors and Asness is agin' it. Or maybe it's the other way around. You can do your own web search for this.
The counter argument, I suppose, is that Vanguard started factor funds like the Value Index but didn't do a very good job of it. You could further argue that Vanguard in their heart of hearts didn't believe in factors and thus put in a half-hearted effort. DFA, Bridgeway, and AQR would do a much better job. Funny though, I own the Vanguard Small Value Index EFT, you know, not small-cap enough and not valuey enough, it has been outperforming the DFA Small Value fund for years now. I thought I was an idiot for buying it but in retrospect I wasn't so dumb after all.
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Re: Good time to do value investing?

Post by livesoft » Thu Sep 06, 2018 10:30 am

steve321 wrote:
Thu Sep 06, 2018 10:26 am
Not sure about small, but in the US large growth has outperformed large value over the last 10yrs as far as I understand, and as Nedsaid has also said above.
So what? If all the outperformance is attributed to the first and second year of that 10 years, that would mean doodly-squat to me and would be cherry-picking the date range. I can cherry pick e date ranges, too, except for the most important date ranges which are the ones in the future.

But maybe you should invest in Large Growth and Small-cap value? How would you even know what will work in the future?
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Re: Good time to do value investing?

Post by nedsaid » Thu Sep 06, 2018 10:33 am

steve321 wrote:
Thu Sep 06, 2018 10:23 am
nedsaid wrote:
Thu Sep 06, 2018 10:16 am
Just don't know when. Such outperformance can happen in unpredictable and violent upward bursts. In other words, you need to be on the train when it leaves the station.
so basically I take it there's no way to relate it to macroeconomic conditions? Though I heard that in a recession value would do worse. So perhaps there are macroeconomic scenrios where we can say it'll do better?
From what I have read, Value does better in strong economies than weak economies. This is because Value companies tend to be more highly leveraged and have more volatile earnings. That is what the academics say anyway. Thing is, the economy is going great right now and Large Growth is still outperforming. I have been pounding the table four years now for Large Value but the markets won't listen. The economy is strong and the markets still won't listen. This is what I mean that asset classes have no obligation to behave the way we think they ought to.

We ought to be in Value Heaven right now. Value is doing okay but growth is doing even better. I remember also that Growth outperformed Value too in the 1990's, when the economy was also pretty strong. So this kind of stuff makes me wonder if I know anything at all.

You have raised a great question. That is a subtle way of saying I don't have the answer.
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Re: Good time to do value investing?

Post by steve321 » Thu Sep 06, 2018 10:38 am

nisiprius wrote:
Thu Sep 06, 2018 10:11 am
Interestingly, Vanguard was one of the first companies to introduce factor-based mutual funds, the Vanguard Growth Index Fund (VIGAX) and the Vanguard Value Index Fund (VIVAX).

This forum is loosely focussed on "investing advice inspired by John C. Bogle." In his 2012 book, Clash of the Cultures, John C. Bogle wrote this (my boldfacing):
1992: Growth and Value Index Funds. Persuaded by the proven success of "all-market" indexing, we determined to offer separate growth and value index funds. When Standard & Poor's at least created these indexes in 1992, we quickly followed suit. The idea was to offer a growth index fund for an investor's accumulation phase and a value index fund in his distribution phase. Alas, too many investors used these portfolios to speculate on which market sector would do best in the future (a loser's game, of course), and their potential has yet to be realized.
Meanwhile, out there in factorland, there is something of a debate between Cliff Asness (founder of AQR) and Rob Arnott (of Research Associates). I think Arnott is for market timing factors and Asness is agin' it. Or maybe it's the other way around. You can do your own web search for this.
Interesting quote: why should growth be better suited for accumulation and value for distribtion? I though value was more volatile which makes it not so good as far as sequence of returns is concerned.

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Re: Good time to do value investing?

Post by steve321 » Thu Sep 06, 2018 10:41 am

acegolfer wrote:
Thu Sep 06, 2018 10:13 am
No. What we learned about value investing is based on empiricals (not on fundamental theory).
surely empirical results are more important than theories that are generated to explain them?

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Re: Good time to do value investing?

Post by DG99999 » Thu Sep 06, 2018 11:16 pm

Vanguard Value Index Fund VIVAX has underperformed the Growth index VIGRX for the following periods: 15, 10, 5, 3 and 1 years, as well as YTD.

Vanguard Small Cap Value Index Fund VISVX has underperformed the Small Cap Growth index VISGX for the following periods: 15, 10, 3 and 1 years as well as YTD (but not over 5 years).

All per M*.

Seems as good a time as any to add/increase the value tilt.
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.

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Re: Good time to do value investing?

Post by stlutz » Thu Sep 06, 2018 11:53 pm

I wlll say that if I ever see a post where nedsaid throws in the towel on value, I will treat that good buy signal. :mrgreen:

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Re: Good time to do value investing?

Post by stlutz » Thu Sep 06, 2018 11:55 pm

More seriously, historically the value premium has been larger and more dependable in down markets than in up markets. So if you think the market is going to do poorly over the next year or two, it could be a good time for value.

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Re: Good time to do value investing?

Post by nedsaid » Fri Sep 07, 2018 12:01 am

stlutz wrote:
Thu Sep 06, 2018 11:53 pm
I wlll say that if I ever see a post where nedsaid throws in the towel on value, I will treat that good buy signal. :mrgreen:
LOL!!! LOL!!! I guess I have arrived now that my posts are becoming a contrary indicator. Only in America. I guess Cliff Asness will read about whatever I am doing and put a big short on it. Never thought I would be able to move markets.

Thanks, stlutz, that was a lot of fun.
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Re: Good time to do value investing?

Post by Wm_o_o_o » Fri Sep 07, 2018 12:09 am

steve321 wrote:
Thu Sep 06, 2018 9:56 am

So basically, if you look at things now, value companies have done worse than growth ones for perhaps 10 years or more in the US; and value regions (like Emerging markets that GMO keep recommending) have done poorly. So there has been a long underperfomance of value relative to growth. And if value over the long term should beat growth, does it not mean that now is a good time to invest in value, since it's all the more likely to spring back sometime soonish? (in order for the long term performance to be superior to growth, as it has historically been).
My bold. I think there is an element of self persuasion at work here. The BH way suggests you should invest now but doesn't say what you should invest in. I like investing in global value companies because they are more interesting and value investing makes long term sense to me, but that wasn't something I decided on now

So if the underlying question is "should I tilt now", that's up to you. I doubt many here would disagree with the idea of investing now anyway, you can always tilt later.

P.S. I'm not sure calling people that recommend Emerging Markets Genetically Modified Organisms [1] is very nice :)

[1] it is the first thing that came up when I searched for GMO

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Re: Good time to do value investing?

Post by Wm_o_o_o » Fri Sep 07, 2018 12:32 am

steve321 wrote:
Thu Sep 06, 2018 10:38 am
nisiprius wrote:
Thu Sep 06, 2018 10:11 am
Interestingly, Vanguard was one of the first companies to introduce factor-based mutual funds, the Vanguard Growth Index Fund (VIGAX) and the Vanguard Value Index Fund (VIVAX).

This forum is loosely focussed on "investing advice inspired by John C. Bogle." In his 2012 book, Clash of the Cultures, John C. Bogle wrote this (my boldfacing):
1992: Growth and Value Index Funds. Persuaded by the proven success of "all-market" indexing, we determined to offer separate growth and value index funds. When Standard & Poor's at least created these indexes in 1992, we quickly followed suit. The idea was to offer a growth index fund for an investor's accumulation phase and a value index fund in his distribution phase. Alas, too many investors used these portfolios to speculate on which market sector would do best in the future (a loser's game, of course), and their potential has yet to be realized.
Meanwhile, out there in factorland, there is something of a debate between Cliff Asness (founder of AQR) and Rob Arnott (of Research Associates). I think Arnott is for market timing factors and Asness is agin' it. Or maybe it's the other way around. You can do your own web search for this.
Interesting quote: why should growth be better suited for accumulation and value for distribtion? I though value was more volatile which makes it not so good as far as sequence of returns is concerned.
Volatility of return is not (was not?) directly related to volatility in price of asset. Anyway, it was 1992! Accumulation and Distribution my have been relatively newly coined phases in many investors lives let alone familiarity with Growth and Value investing as we know it today. To put it another way, I think the meanings of Growth, Value and other terms has shifted over time. [1]

[1] to avoid topic drift does anyone know of a resource of investment term etymology, maybe even a humorous one

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Re: Good time to do value investing?

Post by oldcomputerguy » Fri Sep 07, 2018 5:29 am

steve321 wrote:
Thu Sep 06, 2018 10:41 am
acegolfer wrote:
Thu Sep 06, 2018 10:13 am
No. What we learned about value investing is based on empiricals (not on fundamental theory).
surely empirical results are more important than theories that are generated to explain them?
Empirical results represent effect. Theories explaining them represent cause. When investing for the long term, it’s important to understand cause (as much as one can) so that you can be comfortable with your choices and stick with them.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Good time to do value investing?

Post by Valuethinker » Fri Sep 07, 2018 5:44 am

nedsaid wrote:
Thu Sep 06, 2018 10:33 am
steve321 wrote:
Thu Sep 06, 2018 10:23 am
nedsaid wrote:
Thu Sep 06, 2018 10:16 am
Just don't know when. Such outperformance can happen in unpredictable and violent upward bursts. In other words, you need to be on the train when it leaves the station.
so basically I take it there's no way to relate it to macroeconomic conditions? Though I heard that in a recession value would do worse. So perhaps there are macroeconomic scenrios where we can say it'll do better?
From what I have read, Value does better in strong economies than weak economies. This is because Value companies tend to be more highly leveraged and have more volatile earnings. That is what the academics say anyway. Thing is, the economy is going great right now and Large Growth is still outperforming. I have been pounding the table four years now for Large Value but the markets won't listen. The economy is strong and the markets still won't listen. This is what I mean that asset classes have no obligation to behave the way we think they ought to.

We ought to be in Value Heaven right now. Value is doing okay but growth is doing even better. I remember also that Growth outperformed Value too in the 1990's, when the economy was also pretty strong. So this kind of stuff makes me wonder if I know anything at all.

You have raised a great question. That is a subtle way of saying I don't have the answer.
1. it's a low inflation world. Companies with pricing power are going to get higher PE ratings than companies without. With the possible exception of tobacco, most value stocks don't have any pricing power. Think GE and all its problems.

Inflation is not eroding the debt loads of highly leveraged companies -- again that tends to work against value stocks.

2. a lot of value stocks are financial services. Financial services is still feeling the effects of the Great Financial Crisis -- investors don't trust the earnings. In addition, regulation is a lot higher which lowers margins (increased costs, restrictions on what you can do) but also lowers Return on Equity (you need more regulatory capital).

3. most importantly, the torrid pace of technology-induced change has not slowed down. When you have Amazon (half of all USA online sales apparently) growing in leaps and bounds, Google taking away your advertising revenue and branding power, Apple sucking up the consumer's dollar, etc, then things are tough.

It's not so much that Value is weak as it is that Growth is strong. Some companies continue to make record earnings, record profits growth, record sales growth -- particularly the consumer facing big tech companies. Apple is the most profitable company in human history in absolute terms. Google is arguably the most powerful.

Those sales and profits came at the expense of other businesses. Think telecoms where the old fashioned fixed line businesses are getting killed - under 30s, from my polling, don't seem to have land lines-ever. And the mobile companies in turn have not been the big beneficiaries of the moves to aps-- it's Apple and co who have taken the cream of that crop.

The market is making (so far) a rational view of the transforming power of technology. And who the winners are (among the choice of quoted companies; Google and Facebook et al are running around trying to buy up all the private small companies that one day might disrupt their business franchise).

There are bubbles. Pre IPO "Unicorn" tech stocks. Tesla. I'd throw in Canadian banks (Steve Eisman agrees with me, so we must be right ;-)). Bitcoin, which almost defined the financial term "bubble" - the canonical example.

Other place to watch is luxury and branded goods, generally. Burberry does something like 60% of its sales in Asia? They have ridden the China boom all the way up - what if 1.4 billion Chinese all need a Burberry raincoat? ;-) The last couple of years have seen the challenges of that growth emerge - when austerity becomes a fashion in China.

There are always excesses in these periods of loose money and economic expansion. At some point that will come back to bite us.

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Re: Good time to do value investing?

Post by acegolfer » Fri Sep 07, 2018 7:05 am

oldcomputerguy wrote:
Fri Sep 07, 2018 5:29 am
Empirical results represent effect. Theories explaining them represent cause. When investing for the long term, it’s important to understand cause (as much as one can) so that you can be comfortable with your choices and stick with them.
Well said. There are many causes to value premium. Using one cause in OP to invest in value without considering others is not a good decision making.

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Re: Good time to do value investing?

Post by whodidntante » Fri Sep 07, 2018 7:16 am

Rather than.time factors I like to diversify across factors, for example, value, momentum, quality, size, and market make a powerful combo. It is better to hold one fund that targets all the factors you want, rather than separate funds for value, momentum etc. I do long only portfolios except for my two AQR funds which are long/short portfolios. Long/short portfolios are needed if you want to exclude the market factor.

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Re: Good time to do value investing?

Post by acegolfer » Fri Sep 07, 2018 7:24 am

whodidntante wrote:
Fri Sep 07, 2018 7:16 am
Rather than.time factors I like to diversify across factors, for example, value, momentum, quality, size, and market make a powerful combo. It is better to hold one fund that targets all the factors you want, rather than separate funds for value, momentum etc. I do long only portfolios except for my two AQR funds which are long/short portfolios. Long/short portfolios are needed if you want to exclude the market factor.
May I ask why you like to diversify across factors?

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Re: Good time to do value investing?

Post by asif408 » Fri Sep 07, 2018 7:38 am

I think it's a reasonable idea, you've just got to ask yourself how long would you do it before you would give up on it. Say, for example, you start value tilting today and in 3-4 years value is still lagging growth, would you stick with it or add more to it?

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Re: Good time to do value investing?

Post by Elysium » Fri Sep 07, 2018 7:46 am

What value underperformance? I see nothing. I have owned small value and large growth, both, and EM, Intl Small, etc

Over the years all of them have performed quite well, some better than others at times. But, if you look at the past 5, 10, 15 years, you can hardly see any major difference between US Small Value vs Small Growth and US Large Value vs Large Growth. A small difference may be depending on the start and end dates you select.

Bottomline, I never compain about a 10% annualized return from Small Value for 15 years, even if that meant Small Growth had 11% during same time. Do you?

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Re: Good time to do value investing?

Post by Elysium » Fri Sep 07, 2018 7:49 am

nisiprius wrote:
Thu Sep 06, 2018 10:11 am
Meanwhile, out there in factorland, there is something of a debate between Cliff Asness (founder of AQR) and Rob Arnott (of Research Associates). I think Arnott is for market timing factors and Asness is agin' it. Or maybe it's the other way around. You can do your own web search for this.
There is also a debate among money managers that both of these guys as well as the DFA guys have got it all wrong, and that there are no additional gains from any of these strategies practically. Recent evidence is also pointing in that direction. So, perhaps, Bogle is right after all about just holding Total Market, and about time everyone accept Jack Bogle has more wisdom than all of these professionals and academics combined.

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Re: Good time to do value investing?

Post by Cycle » Fri Sep 07, 2018 8:18 am

Good time to do nothing but buy the whole market.

If I acted on my insight that we are in a bubble and I'd have shifted too soon. I would have missed out on the tech gains seen the last few years. There are some low pe companies, like Samsung... But im sure their price is what it is for a reason.

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fortyofforty
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Re: Good time to do value investing?

Post by fortyofforty » Fri Sep 07, 2018 8:51 am

I do believe "value" and "growth" do not perform equally well all the time. Value has certainly been lagging lately. Does that foretell future outperformance? Only time will tell.
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Re: Good time to do value investing?

Post by whodidntante » Fri Sep 07, 2018 9:39 am

acegolfer wrote:
Fri Sep 07, 2018 7:24 am
whodidntante wrote:
Fri Sep 07, 2018 7:16 am
Rather than.time factors I like to diversify across factors, for example, value, momentum, quality, size, and market make a powerful combo. It is better to hold one fund that targets all the factors you want, rather than separate funds for value, momentum etc. I do long only portfolios except for my two AQR funds which are long/short portfolios. Long/short portfolios are needed if you want to exclude the market factor.
May I ask why you like to diversify across factors?
It avoids the need to time factors, which I probably won't do very well, and the same for you. I also like to have exposures to factors other than the market factor and value. A float weighted total market fund provides exposure to the market factor. A long only value fund provides exposure to value and market, sometimes with negative loading on momentum, size, and quality depending on the exact quantitative screens. I prefer positive loading on those factors.

Value+market is too concentrated for me. If that's the portfolio you want then go for it.

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nedsaid
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Re: Good time to do value investing?

Post by nedsaid » Fri Sep 07, 2018 1:44 pm

Valuethinker wrote:
Fri Sep 07, 2018 5:44 am
nedsaid wrote:
Thu Sep 06, 2018 10:33 am


From what I have read, Value does better in strong economies than weak economies. This is because Value companies tend to be more highly leveraged and have more volatile earnings. That is what the academics say anyway. Thing is, the economy is going great right now and Large Growth is still outperforming. I have been pounding the table four years now for Large Value but the markets won't listen. The economy is strong and the markets still won't listen. This is what I mean that asset classes have no obligation to behave the way we think they ought to.

We ought to be in Value Heaven right now. Value is doing okay but growth is doing even better. I remember also that Growth outperformed Value too in the 1990's, when the economy was also pretty strong. So this kind of stuff makes me wonder if I know anything at all.

You have raised a great question. That is a subtle way of saying I don't have the answer.
1. it's a low inflation world. Companies with pricing power are going to get higher PE ratings than companies without. With the possible exception of tobacco, most value stocks don't have any pricing power. Think GE and all its problems.

Nedsaid: Pricing power is an excellent point. I think with greatly increased foreign competition over the years, US companies in general have less pricing power than in the past. Wal-Mart can always by-pass more expensive US products and buy directly and more cheaply from foreign suppliers.

Certain tech companies seem to have maintained their pricing powers as they have limited competition.


Inflation is not eroding the debt loads of highly leveraged companies -- again that tends to work against value stocks.

Nedsaid: I would say that inflation feels like it is ticking up. Housing and healthcare are a couple areas I have seen inflation pressures. Objectively, harder to say, feelings are not facts. Other things keep falling in price too, particularly with such things as consumer electronics. The laptop I am typing on cost only about $400 a couple of years ago. I have spend probably 2/3 more on software for it, mostly Office 365 and security software.


2. a lot of value stocks are financial services. Financial services is still feeling the effects of the Great Financial Crisis -- investors don't trust the earnings. In addition, regulation is a lot higher which lowers margins (increased costs, restrictions on what you can do) but also lowers Return on Equity (you need more regulatory capital).

Nedsaid: This is a problem with Value investing. You see a concentration in certain sectors. Right now it is Financial and Energy. Thus I say that I am Value oriented than strictly Value. One reason being is the pricing power you discussed in your first point. So I am also concerned with Quality. Fine Cuban cigars bought at a discount rather than picking up cigar butts for a last few puffs. The problem is that cheap can indefinitely remain cheap, you need some sort of catalyst to drive prices higher.

3. most importantly, the torrid pace of technology-induced change has not slowed down. When you have Amazon (half of all USA online sales apparently) growing in leaps and bounds, Google taking away your advertising revenue and branding power, Apple sucking up the consumer's dollar, etc, then things are tough.

It's not so much that Value is weak as it is that Growth is strong. Some companies continue to make record earnings, record profits growth, record sales growth -- particularly the consumer facing big tech companies. Apple is the most profitable company in human history in absolute terms. Google is arguably the most powerful.

Nedsaid: You have made a good point that the world has changed and perhaps forever. Maybe Value has seen its day and perhaps Growth is the place to be. I don't buy this argument but it does have power to it.

Those sales and profits came at the expense of other businesses. Think telecoms where the old fashioned fixed line businesses are getting killed - under 30s, from my polling, don't seem to have land lines-ever. And the mobile companies in turn have not been the big beneficiaries of the moves to aps-- it's Apple and co who have taken the cream of that crop.

Nedsaid: We are seeing this with Amazon. It has just killed off the bookstores. B. Dalton is long gone as is Walden. Borders is long gone too and I mourn its passing. The day of getting a latte and leisurely browsing books is pretty much gone. Barnes and Noble is still around but they took out a lot of the couches. Too much browsin' goin' on out they-a. They want sales and not browsing and have given their customers the big hint. So that experience you used to get in a bookstore is gone.


The market is making (so far) a rational view of the transforming power of technology. And who the winners are (among the choice of quoted companies; Google and Facebook et al are running around trying to buy up all the private small companies that one day might disrupt their business franchise).

Nedsaid: We need Teddy Roosevelt and the trustbusters again.

There are bubbles. Pre IPO "Unicorn" tech stocks. Tesla. I'd throw in Canadian banks (Steve Eisman agrees with me, so we must be right ;-)). Bitcoin, which almost defined the financial term "bubble" - the canonical example.

Other place to watch is luxury and branded goods, generally. Burberry does something like 60% of its sales in Asia? They have ridden the China boom all the way up - what if 1.4 billion Chinese all need a Burberry raincoat? ;-) The last couple of years have seen the challenges of that growth emerge - when austerity becomes a fashion in China.

There are always excesses in these periods of loose money and economic expansion. At some point that will come back to bite us.

Nedsaid: I don't think we are in a stock bubble. If there was a bond bubble, that seems to be deflating a bit. Real Estate in a few areas of the United States, including where I live might be in bubble territory. Signs that my local Real Estate market might be starting to cool.
A fool and his money are good for business.

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Re: Good time to do value investing?

Post by Wm_o_o_o » Thu Sep 13, 2018 4:21 am

Cycle wrote:
Fri Sep 07, 2018 8:18 am
Good time to do nothing but buy the whole market.

If I acted on my insight that we are in a bubble and I'd have shifted too soon. I would have missed out on the tech gains seen the last few years. There are some low pe companies, like Samsung... But im sure their price is what it is for a reason.
If you own any broad International or EM index fund you almost certainly have a bit of Samsung in your PF.

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Re: Good time to do value investing?

Post by Wm_o_o_o » Thu Sep 13, 2018 4:35 am

nedsaid wrote:
Fri Sep 07, 2018 1:44 pm

Nedsaid: I would say that inflation feels like it is ticking up. Housing and healthcare are a couple areas I have seen inflation pressures. Objectively, harder to say, feelings are not facts. Other things keep falling in price too, particularly with such things as consumer electronics. The laptop I am typing on cost only about $400 a couple of years ago. I have spend probably 2/3 more on software for it, mostly Office 365 and security software.
I agree with a lot of what Nedsaid said but would like to point out that as a computing professional I don't actually spend much on hardware or software these days.

Someone else (young people? governments? advertisers?) is buying stuff that they find valuable, not me. People are making stuff in other places because they're better at it or do the same job at a better price.

The thing the hi tech companies are selling is no longer hardware and software.

It also isn't news, false or otherwise.

Valuethinker
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Re: Good time to do value investing?

Post by Valuethinker » Thu Sep 13, 2018 5:50 am

nedsaid wrote:
Fri Sep 07, 2018 1:44 pm
Valuethinker wrote:
Fri Sep 07, 2018 5:44 am
nedsaid wrote:
Thu Sep 06, 2018 10:33 am


From what I have read, Value does better in strong economies than weak economies. This is because Value companies tend to be more highly leveraged and have more volatile earnings. That is what the academics say anyway. Thing is, the economy is going great right now and Large Growth is still outperforming. I have been pounding the table four years now for Large Value but the markets won't listen. The economy is strong and the markets still won't listen. This is what I mean that asset classes have no obligation to behave the way we think they ought to.

We ought to be in Value Heaven right now. Value is doing okay but growth is doing even better. I remember also that Growth outperformed Value too in the 1990's, when the economy was also pretty strong. So this kind of stuff makes me wonder if I know anything at all.

You have raised a great question. That is a subtle way of saying I don't have the answer.
1. it's a low inflation world. Companies with pricing power are going to get higher PE ratings than companies without. With the possible exception of tobacco, most value stocks don't have any pricing power. Think GE and all its problems.

Nedsaid: Pricing power is an excellent point. I think with greatly increased foreign competition over the years, US companies in general have less pricing power than in the past. Wal-Mart can always by-pass more expensive US products and buy directly and more cheaply from foreign suppliers.

Certain tech companies seem to have maintained their pricing powers as they have limited competition.
Wal-Mart was first but the "outsource to China" just doesn't work as well any more. Chinese labour costs have risen very fast. In fact, the markets want to devalue the currency, reflecting that decline in competitiveness, but the government is fighting very hard to prevent that - for reasons of prestige and also to avoid an all-out trade war (not just with USA).

There are other countries of course - Vietnam in particular. Much lower wages and the infrastructure is getting there.

I think Amazon is now taking on that price dropping role. Every consumer facing business is, to some extent, competing with the Amazon channel.
Inflation is not eroding the debt loads of highly leveraged companies -- again that tends to work against value stocks.

Nedsaid: I would say that inflation feels like it is ticking up. Housing and healthcare are a couple areas I have seen inflation pressures. Objectively, harder to say, feelings are not facts. Other things keep falling in price too, particularly with such things as consumer electronics. The laptop I am typing on cost only about $400 a couple of years ago. I have spend probably 2/3 more on software for it, mostly Office 365 and security software.
It's an old problem. CPI-U is just an average. MIT had the "billion price project" using internet sampling which seemed to show that CPI-U roughly tracked prices they could find on the internet. But things like healthcare are not as easy to track - and it's a major major cost for American households. Housing also is an area of huge assumption/ adjustment in price indices.

The functionality of things like smartphones keeps rising (hedonic improvements). Conversely the price of my (2 year, they don't do 18 months any more) mobile phone contract has risen for the first time.
2. a lot of value stocks are financial services. Financial services is still feeling the effects of the Great Financial Crisis -- investors don't trust the earnings. In addition, regulation is a lot higher which lowers margins (increased costs, restrictions on what you can do) but also lowers Return on Equity (you need more regulatory capital).

Nedsaid: This is a problem with Value investing. You see a concentration in certain sectors. Right now it is Financial and Energy. Thus I say that I am Value oriented than strictly Value. One reason being is the pricing power you discussed in your first point. So I am also concerned with Quality. Fine Cuban cigars bought at a discount rather than picking up cigar butts for a last few puffs. The problem is that cheap can indefinitely remain cheap, you need some sort of catalyst to drive prices higher.
Energy companies have no pricing power. The price of oil & gas is what it is, it's all about whether you can transport it economically to market.
3. most importantly, the torrid pace of technology-induced change has not slowed down. When you have Amazon (half of all USA online sales apparently) growing in leaps and bounds, Google taking away your advertising revenue and branding power, Apple sucking up the consumer's dollar, etc, then things are tough.

It's not so much that Value is weak as it is that Growth is strong. Some companies continue to make record earnings, record profits growth, record sales growth -- particularly the consumer facing big tech companies. Apple is the most profitable company in human history in absolute terms. Google is arguably the most powerful.

Nedsaid: You have made a good point that the world has changed and perhaps forever. Maybe Value has seen its day and perhaps Growth is the place to be. I don't buy this argument but it does have power to it.
I never believe that. But I do remember the 1990s when Growth outperformed Value for something like 9 years straight. We are not yet to the excesses of the dot com bubble in terms of growth valuations.

There will be some moment of correction - I just don't know when ;-).
Those sales and profits came at the expense of other businesses. Think telecoms where the old fashioned fixed line businesses are getting killed - under 30s, from my polling, don't seem to have land lines-ever. And the mobile companies in turn have not been the big beneficiaries of the moves to aps-- it's Apple and co who have taken the cream of that crop.

Nedsaid: We are seeing this with Amazon. It has just killed off the bookstores. B. Dalton is long gone as is Walden. Borders is long gone too and I mourn its passing. The day of getting a latte and leisurely browsing books is pretty much gone. Barnes and Noble is still around but they took out a lot of the couches. Too much browsin' goin' on out they-a. They want sales and not browsing and have given their customers the big hint. So that experience you used to get in a bookstore is gone.


The market is making (so far) a rational view of the transforming power of technology. And who the winners are (among the choice of quoted companies; Google and Facebook et al are running around trying to buy up all the private small companies that one day might disrupt their business franchise).

Nedsaid: We need Teddy Roosevelt and the trustbusters again.
And you see the pressure points. Netflix and Amazon are bidding up the price of content - eating their own margins. At some point this comes back to haunt them.
There are bubbles. Pre IPO "Unicorn" tech stocks. Tesla. I'd throw in Canadian banks (Steve Eisman agrees with me, so we must be right ;-)). Bitcoin, which almost defined the financial term "bubble" - the canonical example.

Other place to watch is luxury and branded goods, generally. Burberry does something like 60% of its sales in Asia? They have ridden the China boom all the way up - what if 1.4 billion Chinese all need a Burberry raincoat? ;-) The last couple of years have seen the challenges of that growth emerge - when austerity becomes a fashion in China.

There are always excesses in these periods of loose money and economic expansion. At some point that will come back to bite us.

Nedsaid: I don't think we are in a stock bubble. If there was a bond bubble, that seems to be deflating a bit. Real Estate in a few areas of the United States, including where I live might be in bubble territory. Signs that my local Real Estate market might be starting to cool.
[/quote]
[/quote]

There are various signs US economy is cooling but I must admit it doesn't feel like a recession is starting. But I am not on the ground.

It might be some external geopolitical event that changes the mood. I am thinking a la August 1990 when Saddam invaded Kuwait. In retrospect that was the beginning of the Bull Market (the first bomb falling in Operation Desert Storm in January 1991) but at the time it felt just terrifying.

The US economy had already been in trouble due to the end of the 1980s excesses and the S&L Debacle which sent (along with a low oil price) a number of economies into recession almost depression (thinking Oklahoma & Texas; Southern California due to wind-down of Cold War arms spending-- remember the (excellent) Michael Douglas film "Falling Down"? Where he plays a laid off defence worker?).

Overlaying this is massive structural change. Web based things like Amazon, the Cloud etc. are causing vertiginous rates of change in every industry. And my sense is it hasn't really hit financial services, yet. But there's an industry where Artificial Intelligence could have a truly huge impact. Also what does Amazon do in Financial Services?

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Re: Good time to do value investing?

Post by nedsaid » Thu Sep 13, 2018 10:51 am

Wm_o_o_o wrote:
Thu Sep 13, 2018 4:35 am
nedsaid wrote:
Fri Sep 07, 2018 1:44 pm

Nedsaid: I would say that inflation feels like it is ticking up. Housing and healthcare are a couple areas I have seen inflation pressures. Objectively, harder to say, feelings are not facts. Other things keep falling in price too, particularly with such things as consumer electronics. The laptop I am typing on cost only about $400 a couple of years ago. I have spend probably 2/3 more on software for it, mostly Office 365 and security software.
I agree with a lot of what Nedsaid said but would like to point out that as a computing professional I don't actually spend much on hardware or software these days.

Someone else (young people? governments? advertisers?) is buying stuff that they find valuable, not me. People are making stuff in other places because they're better at it or do the same job at a better price.

The thing the hi tech companies are selling is no longer hardware and software.

It also isn't news, false or otherwise.
Question. If you are a computer professional how are you keeping up if you aren't spending much on hardware and software?

In my own case, I am running Windows 10, that was "free" but I had to replace my printer and keyboard a year and a half ago because they just stopped working. Pretty much, the drivers don't work anymore. I am still running Office 2010 om my main machine but have an Office 365 software on my laptop. My machine at home is probably 6-7 years old, but money is tight, so I have been making do.

Windows 10 wasn't supposed to be more memory intensive than Windows 7. I had my machine built for 7 but 10 magically appeared when I naively left my machine on overnight. You will be assimilated. So I got Windows 10 whether I wanted it or not. Clicking "no" meant "yes" and they had no "heck no" button to click on. But I get performance issues from time to time because of memory. Can't upgrade memory without reloading Windows. A 64 bit vs. 32 bit thing, whatever that is.

Technology races ahead, and it seems hard to keep up. So I wonder how you are doing it.
A fool and his money are good for business.

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