Einhorn: Value is not working

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RationalWalk
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Einhorn: Value is not working

Post by RationalWalk »

David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
https://www.morningstar.com/news/market ... id-einhorn
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km91
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Re: Einhorn: Value is not working

Post by km91 »

That's hedge-fund titan David Einhorn arguing it's tough out there for active money managers thanks to the seemingly inexorable rise of passive investing.
womp womp
ivgrivchuck
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Re: Einhorn: Value is not working

Post by ivgrivchuck »

Summary:
- His stock picks aren't working
- He is frustrated
- Index funds are to blame
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rockstar
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Re: Einhorn: Value is not working

Post by rockstar »

Value investing came up on Bloomberg today.
ksualum
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Re: Einhorn: Value is not working

Post by ksualum »

ivgrivchuck wrote: Thu Feb 08, 2024 4:00 pm Summary:
- His stock picks aren't working
- He is frustrated
- Index funds are to blame
Perhaps it just goes to show how hard it is to outperform the total market (i.e.. index funds)
yules
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Re: Einhorn: Value is not working

Post by yules »

RationalWalk wrote: Thu Feb 08, 2024 3:05 pm David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
https://www.morningstar.com/news/market ... id-einhorn
If this Einhorn guy picks stocks like he picks baseball teams (he wanted to buy the Mets at one point), I want nothing to do with him!

Yules
JimmyJoeMeeker
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Re: Einhorn: Value is not working

Post by JimmyJoeMeeker »

Great interview with Einhorn and poorly summarized by the articles. Full interview: https://www.youtube.com/watch?v=QuGQ0LDWUt8

Appreciated his points about investors buying overpriced "big name stocks" because they look attractive.

And his approach of looking for companies with great dividends and buybacks versus waiting for the market to reprice them.
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Re: Einhorn: Value is not working

Post by RyeBourbon »

Sounds like the guy at the blackjack table complaining that he's losing because the novice at the other end of the table isn't going by what the book says.
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nedsaid
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Re: Einhorn: Value is not working

Post by nedsaid »

Quite honestly, Value hasn't been working at least when you compare it to Growth. FANG, FAANG, MAMAA, The Magnificent Seven, whatever you want to call them have driven home the point that US High Tech is driving the markets. Hence Growth outperforms Value and US outperforms International. Hard to say if the markets have fundamentally changed or if Value will have its day again. People have been talking about how terrible Value has been, that isn't true, Value has been doing just fine; it is the comparisons with Growth that are getting people frustrated. So for now Growth investing and passive indexing are winning, Value has done fairly well but just hasn't kept up. If the author is frustrated, he isn't alone. It might well be that the markets have changed and that Value will no longer beat the market. Just too early to tell.
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rushrocker
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Re: Einhorn: Value is not working

Post by rushrocker »

The more people that ditch value, the better for us value investors.
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Re: Einhorn: Value is not working

Post by WhitePuma »

Einhorn is Finkle, Finkle is Einhorn!
rkhusky
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Re: Einhorn: Value is not working

Post by rkhusky »

rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
ivgrivchuck
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Re: Einhorn: Value is not working

Post by ivgrivchuck »

rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
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er999
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Re: Einhorn: Value is not working

Post by er999 »

rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
In the interview he says that he’s getting the return from value stocks the dividends paid out rather then selling to other investors. He says in the past he might have bought a stock with a PE of 10:1 and sold when other investors recognized the worth of a company in a few years. Now he says he can find companies with 5:1 (since less competition in the value space) and just collect their dividends rather than planning on selling to another investor.
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Nathan Drake
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Re: Einhorn: Value is not working

Post by Nathan Drake »

nedsaid wrote: Thu Feb 08, 2024 8:27 pm Quite honestly, Value hasn't been working at least when you compare it to Growth. FANG, FAANG, MAMAA, The Magnificent Seven, whatever you want to call them have driven home the point that US High Tech is driving the markets. Hence Growth outperforms Value and US outperforms International. Hard to say if the markets have fundamentally changed or if Value will have its day again. People have been talking about how terrible Value has been, that isn't true, Value has been doing just fine; it is the comparisons with Growth that are getting people frustrated. So for now Growth investing and passive indexing are winning, Value has done fairly well but just hasn't kept up. If the author is frustrated, he isn't alone. It might well be that the markets have changed and that Value will no longer beat the market. Just too early to tell.
Most people aren't exclusively investing in Growth, which is heavily concentrated in a handful of companies/sectors.

When compared to "The market", Value has been working over the last few years - enjoying a nice premium in the US, Developed Markets, and Emerging Markets.

So I don't know how you can claim that it isn't working. Seems to be working just fine.
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Curb Fan
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Re: Einhorn: Value is not working

Post by Curb Fan »

WhitePuma wrote: Thu Feb 08, 2024 9:04 pm Einhorn is Finkle, Finkle is Einhorn!
Hey WhitePuma, here's some actionable advice...laces out!
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HomerJ
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Re: Einhorn: Value is not working

Post by HomerJ »

JimmyJoeMeeker wrote: Thu Feb 08, 2024 6:46 pm Great interview with Einhorn and poorly summarized by the articles. Full interview: https://www.youtube.com/watch?v=QuGQ0LDWUt8

Appreciated his points about investors buying overpriced "big name stocks" because they look attractive.
Investors buying overpriced "big name stocks" are not index investors.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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HomerJ
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Re: Einhorn: Value is not working

Post by HomerJ »

WhitePuma wrote: Thu Feb 08, 2024 9:04 pm Einhorn is Finkle, Finkle is Einhorn!
LOL, I'm in Psychoville and Finkle is the mayor!
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
rushrocker
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Re: Einhorn: Value is not working

Post by rushrocker »

rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
Assuming the fundamentals of the company aren't changing, then the stock would simply become cheaper relative to the fundamentals, thus creating higher expected returns.
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Re: Einhorn: Value is not working

Post by Northern Flicker »

RationalWalk wrote: Thu Feb 08, 2024 3:05 pm David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
Algorithmic traders having no opinion about value is fine, but passive traders having no opinion about value is broken?

I suspect what is "broken" about passive investors is that they are not paying hedge fund managers hefty 2 and 20 fees to invest for them.
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Re: Einhorn: Value is not working

Post by Bernmaster »

RationalWalk wrote: Thu Feb 08, 2024 3:05 pm David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
https://www.morningstar.com/news/market ... id-einhorn
While I don't agree with Mr. Einhorn's complaints about value/ index funds I have to admit that in German he has a nice surname. I would love to be called "David Unicorn".
"The unsophisticated investor who is realistic about his shortcomings is likely to obtain better results than the knowledgeable professional who is blind to even a single weakness” ― Warren Buffett
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Re: Einhorn: Value is not working

Post by Valuethinker »

Bernmaster wrote: Fri Feb 09, 2024 1:41 am
RationalWalk wrote: Thu Feb 08, 2024 3:05 pm David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
https://www.morningstar.com/news/market ... id-einhorn
While I don't agree with Mr. Einhorn's complaints about value/ index funds I have to admit that in German he has a nice surname. I would love to be called "David Unicorn".
My guess is it was a Jewish name which was Germanified when his family moved to Germany (and probably assimilated).

In the sense that one would be "Jacob the tailor" or "William the Smith" and became Jacob Taylor and Bill Smith, when ordinary folk started to have names. So his ancestors probably grabbed the name of a local town, or something that sounded OK to them. (Cohen means "priest" in Yiddish, I gather, hence the popularity of that name).

Also the Prince of Brandenburg Prussia (Duke?) wanted to develop Berlin as being more than a provincial town but a prosperous capital in its own right (this was in the late 1600s/ early 1700s?). So he offered Jews who would move to Berlin an unprecedented freedom of the city, and even equal rights (in some areas) as other citizens. That triggered a big movement of Jews to Berlin from rural areas (and possibly from the old Russian Empire) and the beginnings of assimilation. I am not sure about the Jewish populations of places like medieval Frankfurt but something similar must have happened.
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Re: Einhorn: Value is not working

Post by BitTooAggressive »

nedsaid wrote: Thu Feb 08, 2024 8:27 pm Quite honestly, Value hasn't been working at least when you compare it to Growth. FANG, FAANG, MAMAA, The Magnificent Seven, whatever you want to call them have driven home the point that US High Tech is driving the markets. Hence Growth outperforms Value and US outperforms International. Hard to say if the markets have fundamentally changed or if Value will have its day again. People have been talking about how terrible Value has been, that isn't true, Value has been doing just fine; it is the comparisons with Growth that are getting people frustrated. So for now Growth investing and passive indexing are winning, Value has done fairly well but just hasn't kept up. If the author is frustrated, he isn't alone. It might well be that the markets have changed and that Value will no longer beat the market. Just too early to tell.
Every asset class has its day. I tilt to value because long term I think it gives additional diversification and potential for higher returns.

Nothing is guaranteed including the market beating short term treasuries. The stock market stopped working according to that silly argument because bonds outperformed the stock market for many years numerous times.
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Re: Einhorn: Value is not working

Post by rkhusky »

rushrocker wrote: Fri Feb 09, 2024 1:12 am
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
Assuming the fundamentals of the company aren't changing, then the stock would simply become cheaper relative to the fundamentals, thus creating higher expected returns.
You can’t eat higher expected returns. You eventually want those expected returns to turn into actual returns. Also, if the value stocks turn out to be poor stocks in actuality, as the market is indicating, and go bankrupt, your expected return is going to vanish.
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Re: Einhorn: Value is not working

Post by rkhusky »

er999 wrote: Thu Feb 08, 2024 11:19 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
In the interview he says that he’s getting the return from value stocks the dividends paid out rather then selling to other investors. He says in the past he might have bought a stock with a PE of 10:1 and sold when other investors recognized the worth of a company in a few years. Now he says he can find companies with 5:1 (since less competition in the value space) and just collect their dividends rather than planning on selling to another investor.
If you’re satisfied with 2% or 3% return that’s fine. Also, stock dividends are not guaranteed. Value stocks can be on shaky financial ground. If the economy gets tough, value stocks can cut or eliminate their dividends or go bankrupt.
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Re: Einhorn: Value is not working

Post by rkhusky »

ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
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Re: Einhorn: Value is not working

Post by BitTooAggressive »

rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
I would not say that, most return comes from earnings growth. PE changes probably make the biggest changes short term as they tend to go in cycles, become overvalued and then have a significant drop. Rinse and repeat. But long term you are hoping for earnings growth.
rkhusky
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Re: Einhorn: Value is not working

Post by rkhusky »

BitTooAggressive wrote: Fri Feb 09, 2024 8:22 am
rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
I would not say that, most return comes from earnings growth. PE changes probably make the biggest changes short term as they tend to go in cycles, become overvalued and then have a significant drop. Rinse and repeat. But long term you are hoping for earnings growth.
Earnings growth -> price appreciation.
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greg24
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Re: Einhorn: Value is not working

Post by greg24 »

If passive investors are blindly ignoring the value in value, then value should outperform in the long run.

This guy is a whiner.
abc132
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Re: Einhorn: Value is not working

Post by abc132 »

Winning formula
1. buy X instead of Y
2. have X perform worse than alternative Y
3. you are now sure to outperform Y!

If this should be applied to value, then this methodology should be applied to all investments. We could even chase high PE stocks with this methodology, waiting for them to underperform so we have assured winners!

A more logical argument would be on the lines of continued investing over time taking advantage of any dips but it would never be about assured outperformance.

I do find the value investing comments amusing at times. Your investment underperforming is in now way an indication you will overperform.
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TimeIsYourFriend
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Re: Einhorn: Value is not working

Post by TimeIsYourFriend »

Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
"Time is your friend; impulse is your enemy." - John C. Bogle
abc132
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Re: Einhorn: Value is not working

Post by abc132 »

TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
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Re: Einhorn: Value is not working

Post by Xrayman69 »

Don’t hear Buffett complaining about the cost of “value” companies going down. If they are truly value and sufficiently low stock price, I suspect buffet would have a sniff at the company and buy it out wholesale as that’s the Berkshire model.
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Re: Einhorn: Value is not working

Post by BitTooAggressive »

rkhusky wrote: Fri Feb 09, 2024 8:32 am
BitTooAggressive wrote: Fri Feb 09, 2024 8:22 am
rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
I would not say that, most return comes from earnings growth. PE changes probably make the biggest changes short term as they tend to go in cycles, become overvalued and then have a significant drop. Rinse and repeat. But long term you are hoping for earnings growth.
Earnings growth -> price appreciation.
Its price to earnings is what matters. Absolute price of a stock is meaningless unless you compare it to earnings , revenue or the cost of a bushel of wheat or something for comparison.
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TimeIsYourFriend
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Re: Einhorn: Value is not working

Post by TimeIsYourFriend »

abc132 wrote: Fri Feb 09, 2024 9:03 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
No one recommends or invests in large value here? I find that hard to believe. I invest in large value, so maybe I'm the only one. :happy

Those who got the returns I quoted was anyone who held Vanguard VTV over the periods in question. Likely other similar simple large value funds of low costs performed similarily.
"Time is your friend; impulse is your enemy." - John C. Bogle
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Re: Einhorn: Value is not working

Post by mikejuss »

ivgrivchuck wrote: Thu Feb 08, 2024 4:00 pm Summary:
- His stock picks aren't working
- He is frustrated
- Index funds are to blame
:wink:
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abc132
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Re: Einhorn: Value is not working

Post by abc132 »

TimeIsYourFriend wrote: Fri Feb 09, 2024 9:14 am
abc132 wrote: Fri Feb 09, 2024 9:03 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
No one recommends or invests in large value here? I find that hard to believe. I invest in large value, so maybe I'm the only one. :happy

Those who got the returns I quoted was anyone who held Vanguard VTV over the periods in question. Likely other similar simple large value funds of low costs performed similarily.
With this methodology, all your have to do is pick whatever works after the fact and declare the value strategy successful. Someone will have invested in anything. You can justify any strategy as successful with this methodology by picking the composition after the fact, and thus it is meaningless to do so.

The value strategy was predominantly SCV because you get stacking of two factors with expected premiums. If you believe in factor premiums you were not selecting LCV as your factor exposure. At best you had exposure to SCV and LCV and quoting LCV is still a big misrepresentation of the returns you would have received.

The performance of the value strategy is not well-represented but something with the word value in it that happened to do okay.
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TimeIsYourFriend
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Re: Einhorn: Value is not working

Post by TimeIsYourFriend »

abc132 wrote: Fri Feb 09, 2024 9:25 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 9:14 am
abc132 wrote: Fri Feb 09, 2024 9:03 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
No one recommends or invests in large value here? I find that hard to believe. I invest in large value, so maybe I'm the only one. :happy

Those who got the returns I quoted was anyone who held Vanguard VTV over the periods in question. Likely other similar simple large value funds of low costs performed similarily.
With this methodology, all your have to do is pick whatever works after the fact and declare the value strategy successful. Someone will have invested in anything. You can justify any strategy as successful with this methodology by picking the composition after the fact, and thus it is meaningless to do so.

The value strategy was predominantly SCV because you get stacking of two factors with expected premiums. If you believe in factor premiums you were not selecting LCV as your factor exposure. At best you had exposure to SCV and LCV and quoting LCV is still a big misrepresentation of the returns you would have received.

The performance of the value strategy is not well-represented but something with the word value in it that happened to do okay.
When someone says "Value" is not working, it is not defacto small value. In fact, if they don't specify small value, I would think they were talking large value or value strategies regardless of market cap (like Alpha Architect does it).

The French data library has returns for both small and big value. Stacking of factors is not a requirement to get a value premium over the market. The market did win over these periods (from 2010, the market returns like 13% nominal). But even SCV (Vanguard VBR) returned a nominal 10.9%! from 2010 to present. So, yeah, neither LCV or SCV outperformed the market but they had great returns regardless. This is just an embarrassing run of growth valuations.
"Time is your friend; impulse is your enemy." - John C. Bogle
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Re: Einhorn: Value is not working

Post by ivgrivchuck »

rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
True, but I think we went a full circle here.

So traditionally successful value investors have benefited from the markets recognizing the true value of their stocks, and hence price appreciation.

If Einhorn is right and this mechanism is now broken, over time successful value investors will buy cheaper and cheaper stocks, and collect bigger and bigger dividends.

Now in practice sooner or later, mr. Market will realize its mistake (if there indeed is one!), but even if that didn't happen successful value investors would still be fine, since the ever increasing E/P would compensate for the lack of price appreciation.
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Kenkat
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Re: Einhorn: Value is not working

Post by Kenkat »

abc132 wrote: Fri Feb 09, 2024 9:03 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
I did, Vanguard Value Index Admiral is a long term holding making up about 10% of my total portfolio (20% of equity holdings).

At some point the high flying tech stocks will fall out of favor and then we can get to the “I’m thinking of adding a value fund” posts.
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Re: Einhorn: Value is not working

Post by KneeReplacementTutor »

yules wrote: Thu Feb 08, 2024 6:25 pm
RationalWalk wrote: Thu Feb 08, 2024 3:05 pm David Einhorn has the option that passive investing (e.g., you and me) has eroded the value of value:
I view the markets as fundamentally broken...Passive investors have no opinion about value. They're going to assume everybody else has done the work.'David Einhorn, president, Greenlight Capital

"Value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money which doesn't have an opinion about value it has an opinion about price: 'What is the price going to be in 15 minutes and I want to be ahead of that,'" he explained.
https://www.morningstar.com/news/market ... id-einhorn
If this Einhorn guy picks stocks like he picks baseball teams (he wanted to buy the Mets at one point), I want nothing to do with him!

Yules
And how about this... "Einhorn is Finkle. Finkle is Einhorn!" Who could possibly rely on his opinion?!
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Re: Einhorn: Value is not working

Post by donaldfair71 »

ivgrivchuck wrote: Thu Feb 08, 2024 4:00 pm Summary:
- His stock picks aren't working
- He is frustrated
- Index funds are to blame
Kind of took it the same way.

I gave his argument credit and listened attentively until he referenced Michael Green as someone who showed him the light on this.
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Re: Einhorn: Value is not working

Post by donaldfair71 »

Nathan Drake wrote: Fri Feb 09, 2024 12:13 am
nedsaid wrote: Thu Feb 08, 2024 8:27 pm Quite honestly, Value hasn't been working at least when you compare it to Growth. FANG, FAANG, MAMAA, The Magnificent Seven, whatever you want to call them have driven home the point that US High Tech is driving the markets. Hence Growth outperforms Value and US outperforms International. Hard to say if the markets have fundamentally changed or if Value will have its day again. People have been talking about how terrible Value has been, that isn't true, Value has been doing just fine; it is the comparisons with Growth that are getting people frustrated. So for now Growth investing and passive indexing are winning, Value has done fairly well but just hasn't kept up. If the author is frustrated, he isn't alone. It might well be that the markets have changed and that Value will no longer beat the market. Just too early to tell.
Most people aren't exclusively investing in Growth, which is heavily concentrated in a handful of companies/sectors.

I think this is an important detail.

According to Einhorn, the only way to "win" is trend follow what is going up (which is fine and has merits, but he certainly isn't saying "Value is dead" in support of total market funds).
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Re: Einhorn: Value is not working

Post by donaldfair71 »

There's some delicious irony that his interviewer once wrote an entire article covering the "Death of Equities" right before the greatest bull market in equities we have ever seen.
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Re: Einhorn: Value is not working

Post by RyeBourbon »

donaldfair71 wrote: Fri Feb 09, 2024 11:02 am There's some delicious irony that his interviewer once wrote an entire article covering the "Death of Equities" right before the greatest bull market in equities we have ever seen.
I wonder how many people knew at the time that the author was 18 years old.
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Re: Einhorn: Value is not working

Post by donaldfair71 »

RyeBourbon wrote: Fri Feb 09, 2024 11:31 am
donaldfair71 wrote: Fri Feb 09, 2024 11:02 am There's some delicious irony that his interviewer once wrote an entire article covering the "Death of Equities" right before the greatest bull market in equities we have ever seen.
I wonder how many people knew at the time that the author was 18 years old.
Interesting, and impressive for BR. I always had heard he was this very dynamic and achieved writer, and I know that he has mentioned (perhaps in jest?) that the article wasn't really supposed to be what it wound up being.
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Re: Einhorn: Value is not working

Post by rkhusky »

BitTooAggressive wrote: Fri Feb 09, 2024 9:13 am
rkhusky wrote: Fri Feb 09, 2024 8:32 am
BitTooAggressive wrote: Fri Feb 09, 2024 8:22 am
rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm

If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
I would not say that, most return comes from earnings growth. PE changes probably make the biggest changes short term as they tend to go in cycles, become overvalued and then have a significant drop. Rinse and repeat. But long term you are hoping for earnings growth.
Earnings growth -> price appreciation.
Its price to earnings is what matters. Absolute price of a stock is meaningless unless you compare it to earnings , revenue or the cost of a bushel of wheat or something for comparison.
Price x number of shares is meaningful to me.
rkhusky
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Re: Einhorn: Value is not working

Post by rkhusky »

ivgrivchuck wrote: Fri Feb 09, 2024 10:39 am
rkhusky wrote: Fri Feb 09, 2024 7:26 am
ivgrivchuck wrote: Thu Feb 08, 2024 10:00 pm
rkhusky wrote: Thu Feb 08, 2024 9:51 pm
rushrocker wrote: Thu Feb 08, 2024 8:43 pm The more people that ditch value, the better for us value investors.
Not really. The value of your holdings will go down. Eventually you need people to want to buy it.
If your time horizon is 40+ years, returns from dividends and buy-backs will also have a big impact, not only the final sale price.
Stocks have traditionally obtained most of their returns from price appreciation.
True, but I think we went a full circle here.

So traditionally successful value investors have benefited from the markets recognizing the true value of their stocks, and hence price appreciation.

If Einhorn is right and this mechanism is now broken, over time successful value investors will buy cheaper and cheaper stocks, and collect bigger and bigger dividends.

Now in practice sooner or later, mr. Market will realize its mistake (if there indeed is one!), but even if that didn't happen successful value investors would still be fine, since the ever increasing E/P would compensate for the lack of price appreciation.
As long as the companies don’t reduce the level of dividends and don’t go bankrupt, which becomes more probable as the price goes down. That is, the price is going down for a reason.
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Re: Einhorn: Value is not working

Post by abc132 »

Kenkat wrote: Fri Feb 09, 2024 10:50 am
abc132 wrote: Fri Feb 09, 2024 9:03 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:59 am Vanguard VTV LARGE CAP VALUE has a real return of 8.6% (nominal 11.3%) since 2010, supposedly a bad period for value. Since 2018, supposedly a terrible time for value, it has had a 4.9% real return (nominal 8.7%). I'll take either of those returns any decade for stocks. Yes, the growth stocks have shot to the moon and historically value outperforms growth but it isn't like a value index portfolio is just plain dying. It has good returns just not relative to an explosion in tech growth.
I heard exactly zero people recommending large value as a strategy.

Who received these returns you have quoted?
I did, Vanguard Value Index Admiral is a long term holding making up about 10% of my total portfolio (20% of equity holdings).

At some point the high flying tech stocks will fall out of favor and then we can get to the “I’m thinking of adding a value fund” posts.
What are your 20 year portfolio returns and what are the 20 year returns of ALL of your value holdings?

That will tell us how your strategy is doing. 20% of your equity holdings doesn't tell us anything.

I just want the conversation to be realistic rather than potentially biased misrepresentation.

I'm asking for a good argument to be made in support of value in place of this idea that we can always select one (potentially biased) instance of performance and pretend it is representative.
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Re: Einhorn: Value is not working

Post by Kenkat »

RyeBourbon wrote: Fri Feb 09, 2024 11:31 am
donaldfair71 wrote: Fri Feb 09, 2024 11:02 am There's some delicious irony that his interviewer once wrote an entire article covering the "Death of Equities" right before the greatest bull market in equities we have ever seen.
I wonder how many people knew at the time that the author was 18 years old.
I heard he grew up to be a fine individual.
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