abc132 wrote: ↑Mon Feb 12, 2024 12:02 am
If they don't matter, why bother value investing?
Was everyone here a value investor in 1993? We heard value was difficult to find at that time by a value investor in this thread.
It's a terrible strategy to start with something that has previously outperformed and include that outperformance as if it was part of your own returns. That's what many value investors seem to be doing. I often hear about a premium that is misrepresentative of the premium achieved by the person citing the premium. It's often whatever happens to backtest best from today - as if everyone knew to own that particular value composition.
Value was hard to find in 1993. It was said in this thread by a value investor. 1993 start date is not representative of most value investors here.
Do we know our actual value factor premium that we have obtained? Start there and from there we can consider what we expect value to do. If we don't know our own individual premium we certainly can't estimate how likely value is to have improved our portfolio. We can say it doesn't matter but then why are we investing in value?
It is a personal preference for some investors and it may be of help to them from a behavioral aspect which is very important for success. What works for each individual may be somewhat different, so long as they all lead to similar levels of success then it meets the purpose. For instance, some don't like participating in out of control rising valuations with the market portfolio, such as 1994-1999 period or other such periods in history, they may prefer value investing which allows them some sense of controlled growth. Having your portfolio heavily influenced by one index, S&P 500, may subject you to periods like that followed by periods like lost decade (2000-09). This is a personal preference for some.
I don't care enough to debate value premium or some other market beating approach at this time, there are many, and most of it don't matter unless you take some outsized risk, not enough to make a large difference anyway. There is no need to try anything, other than just investing in broad market portfolio, however we must realize it may not work for all due to behavioral reasons, not matter how much you try to educate someone, they have to get to it themselves. If they can't and they prefer investing in large value and small value along with S&P 500 then so be it, it's not catastrophic is they stay the long haul, they will beat 99% of investors anyway, just because they earned the full returns from those indexes, something most investors don't get to earn. The tell tale charts show there is not significant difference from value, however different periods value and growth tend to outperform each other.
Point is, if someone believes in it, wish to follow it, and it helps them stay the course then nothing wrong with it. One can even try individual stock picking so long as they have a process, they can stay with it for long haul, not be emotionally influenced, and finally not concerned about beating some benchmark. If the idea is to get to your goal and you have a sound approach then it is not a bad approach so long as you can stick to it. Investors fail not because they chose to invest in value portfolio or something else, they fail because they are not able to stay the course. Jack Bogle said repeatedly "stay the course" and I have learned over time that this is one thing that all investors can do to make a difference than anything else.