So following your logic, value investors would survive (not even talking about high returns) a multi-dedade decline in the stock market (a la Japan starting '89)? Give me a break! The thing about value investing is that one never knows if one's fundamental reason is the cause for a stock's rise. Why do you think Buffet started getting into options and various complex derivatives? Those buy and hold strategies must not be working too well (even for somebody as well connected as he is).
1. Yes, Value investors usually don't use long-side leverage on their bets. If their portfolios went down 70% during the 1930s they still "survived". Value investing != absolute returns. Value investing = "buy 1 dollar for 50 cents or less and wait out the distressed times" (buy and pray if you will). 2. Value investing per se is not confined to long only exposure. You can short "overvalued" and buy "undervalued". You could have made a bundle with that approach in Japan post 1990s. This thread has too much of "my trading method is so much better than Buffet's". You're comparing apples to oranges. Trading != investing.
actually makloda is extremely knowledgeable. his area of expertise is hedge fund performance where unfortunately he is biased in favor of throwing your money away to hedge fund managers in fees of 2% management fees + 20%of the profit arrangements. i suggest you read his other posts very carefully(articleon german banks was a gem). you sound like a neophyte 1 small step away from a blowout.. leverage will take you out of the game because of your skill level or by an extreme random event
Sorry, but down 70% is, all things being equal, pretty close to blow up levels. I don't see the benefits of a margin of safety, in that case. Especially if the gerneral market is going to drag down your stock into the mudd anyway. (More likely to happen these days, since a large number of stocks are purchased through mutual funds.) Value investors also talk about risk and reward not always being in a fixed ratio. That may be, but in order to benefit from this inefficiency one would have to look toward junk bonds and small-caps. So your margin of safety is basically eliminated since they have a higher default rate and constitute a much riskier investment than the SP500. You simply can't get around the risk/reward ratio, as much as value investors claim they can. Btw, I never compared value investing to trading. Also talk to some of the "value investors" about their experience shorting NASDAQ futures in 1999 based on fundamentals. Oh wait, they're not in the game anymore... wonder why...
Funny you mention that. Here is an author who is predicting a side-ways market for the next decade: Active Value Investing Range Bound is the title. Now, this begs the question: how does he know that this strategy will work, if the last time one had a chance to test it was in the 1962-1982 side-ways market?? http://www.amazon.com/Active-Value-...bs_sr_1?ie=UTF8&s=books&qid=1233078296&sr=8-1
This one is even better: http://www.amazon.com/Little-Value-...=sr_1_3?ie=UTF8&s=books&qid=1233078715&sr=8-3 His company's Tweedy, Browne Value (TWEBX) fund, compared to the SP500 (without figuring in fees). I wonder how they get away with this kind of crap. The SOB actually published a book on value investing and can't beat the SP500... not even once! http://finance.yahoo.com/charts?s=TWEBX If you had invested with this guy at the inception of the fund, you'd be in the red right now!
Benjamin Graham's method from The Warren Buffet Way: http://wl4.wealth-lab.com/cgi-bin/WealthLab.DLL/editsystem?id=48693 Basically whatever current assets are left on the balance sheet net of all liabilities is what a company is worth. Most companies by this metric, however, are worthless.
Another favorite of mine. Peter Lynche's Magellan fund. Another 'star investor' who claims that most investors lost money because they dumped his fund during bear markets. Well, this would have been the result if one would have hung on for the "long haul": http://finance.yahoo.com/charts?s=FMAGX Don't believe any other these "star" fund managers. This is a filthy business.
It has not dawned on some people that long term performance of US stock market had (*gasp*) something to do with US economic dominance during 20th century. During latter part of 19th century US was a rapidly industrializing power, during all of 20th century US was experiencing almost never ending periods of technological innovation (electricity on a large scale, telephones, automobiles, airplanes, satellites, transistors, PCs, internet, etc. That is not to mention the fact that Europe committed collective suicide during WWII (and WWI too) US is a mature economy now and the relative economic position US occupied after WWII is not going to come back ever. Furthermore, explosive growth for the US stock market can also be attributed to the rise of the scheme known as 401(k) which channeled US household wealth into the stock market. Dow Jones did not recover its 1929 level until 1954! Nikkei is still going "strong" about avoiding its peak achieved in 1989. If during a bull market a stock like Coca-Cola rises it surely must be because of "intrinsic value" not because a Bull Market lifts all boats. If it subsequently falls it must be because market is unreasonable.