Is it just me, or does value investing only work during a bull market? And if that's the case, there's nothing special about value investing because a monkey can make $$ in a bull market. Then again, I suppose you could make the argument that over the long haul, the stock market is one big bull market.
I do value investing. I've done quite well lately. We aren't in a bull market currently.... You can't loose when you buy a stock that is growing at 10% a year and trading at 3X FCF. That's value investing to me.
If it's that simple, why are most value mutual funds taking a bath? It seems that if one follows the value mantra, finding winners is as simple as plugging in a few requirements into a screener. I'm not saying you're wrong or it can't be done, in fact, I have no experience with value investing myself. I'm just curious if value investors usually lose in bear markets and win in bull markets. I suspect that's the case.
Corso- It's the result of not following one's own methodology. Many failed value investors fall for "value traps" or stray into growth areas etc. Also, sometimes, next year's cash flow is unpredictible, or there are factors that aren't considered. When a stock is very cheap, there's usually a reason. You must decide if that reason is not insurmountable. That's the main question. Anyone can scan for cheap stocks.
So if the true skill isn't in finding cheap companies, but deciding whether their cheapness is do to an insurmountable problem, then the process is highly subjective, and therefore you CAN lose. But thanks for getting to the heart of the matter. Every time I hear value investors speak, they always say 'you can't lose.' And they cite how much cash the company has on its books yada yada. I'm trying to reconcile that logic with the fact that most value funds are in intensive care. Like I said, maybe they'll get the last laugh in the long run. If you don't mind me asking, do you incorporate any TA in your value investing? It seems to me that ignoring TA may result in some horrible timing, which can result in some huge drawdowns, assuming you hold on for the long term and have no stop loss. As well, I've noticed a lot of the stocks that are 'great values' are often unknown stocks with poor liquidity. Could it be that mutual funds are too big to take advantage of the real diamonds in the rough?
you are right in both respects. I use TA to time my buys. There are lots of stocks that I am "watching" also, the reason that they're values is that the market cap is under 50m and therefore not suitable for mutual funds
Same here ..... The world still spins: people still need and want products and services and there are companies that are still doing this profitably with talented management. In my long term accounts I invest in companies and industries I understand and research the industries that I dont know as well... When the charts show an entry point opportunity I take it. In my long term equity accounts I made a 19 percent return last calendar year on positions entered into during calendar year 2002 - handily beating the S&P and I still hold most of those positions ....
Value investing has been shown to work over the long term. Have a read of David Dreman or Gallea and Patallon, both of which give evidence from long term studies that investing in stocks with Low PE, Low PCF, Low PTBV and High Dividend Yield will beat the market. Sure there will be periods where it wont. America is in so much pooh at present that I doubt any long strategy will work. Your stocks by historical terms are still way over valued, and there are similarities to Japan in the early 90s. I expect the Dow to fall to around 4000 over the next year or two. Your President is trying to shift the emphasis away from domestic issues by flexing the military might (I actually think America and Britain my Country are right to go and sort out Saddam despite little public appetite). So please don't tell me value investing doesn't work, I have had wonderful success with it even during the UK stock market turmoils over the past three years (Market fell three years in a row, first time since the 1920/30s). It just isn't as easy to pick a winning stock. My advice, stick to the big guys on rediculous low PEs with good Divi's. At the very least you should limit the downside.
Hmmmmmm ..... I kind of doubt that the worlds largest economy is going to take that kind of nosedive and that the capital markets will fall into such disfavor. ..... Over the last 25 years - working in one way or another in the markets - I have heard this type of talk over and over and over again ...... I dont think that the economic evidence supports this this scenario. ... Just my opinion ....
You don't have the worlds largest economy anymore! The European Union does. Japan was the second largest when it went tits up, what makes you different? By earnings ratio's your markets are way over priced compared to the past. Where can you go from here to stimulate your economy? Interest rates have little or no room for manouvre, your Government would have to dig deep (both physically and philisofically) to increase spending. Consumers are going to be nervous given the likelyhood of war and further terror attacks. So please do tell how you are going to stimulate an economy that is obviously stalling? I know, how about obtaining a lot of oil revenue...