It certainly hasn't been an easy year for value investors, those intrepid types who invest in companies whose stocks are trading at a sizable discount to their intrinsic values. Peter Puccetti, chairman and chief investment officer at Goodwood Inc., called these “the dark days of value investing” in a note to clients.
“Over the long run, share prices inevitably reflect the fundamentals of the underlying business, measured in earnings, cash flow and returns on shareholders' capital,” Mr. Puccetti said. “However, in the short run, all bets are off.”
Indeed, the Goodwood Fund has lost 26.9 per cent for so far this year, to the end of July, versus a loss of 0.2 per cent for the benchmark S&P/TSX composite index. Even with this setback, the fund has enjoyed a remarkable longer-term success, with a 14.8 per cent annual return, handily beating the index. Still, for some fund managers, short-term losses can be a nightmare: Nervous investors can pull their money out, and the redemptions force managers to raise cash by selling their holdings, leading to further losses in some cases.
That's why Mr. Puccetti is quick to note that value investing has become a more compelling strategy as beaten up stocks fall further – and hey, even the mighty Warren Buffett has seen Berkshire Hathaway Inc.'s share price fall 20 per cent this year.
“While the Funds' year-to-date results give us little to cheer about, our enthusiasm regarding our core positions and the number and quality of new investment ideas we are seeing has increased significantly,” he said. “While we don't know when the current sentiment towards value investing will change, we know that it will.”
His top five holdings include Pet Valu Canada Inc., whose shares are up 3.9 per cent this year, and Agilysys Inc., whose shares are down 24.1 per cent.
