Billionaire hedge fund manager and venture capitalist Cliff Asness kicked off an intense discussion regarding the underperformance of value investing strategies with “Is (Systematic) Value Investing Dead? published on May 8.
Mr. Asness’ analysis is complicated, befitting his quantitative investing style, covering the usefulness of valuation techniques like price to book in a market environment dominated by high profit margin technology companies.
The conclusion of the piece was that value investing was far from dead, and it got me thinking very seriously about adding a value component to my portfolio. He writes, “Value is exceptionally cheap today, and it gets cheaper (and becomes clearly the cheapest ever) the closer our analysis gets to realistic implementations. Measured in the most realistic way (for us) neither tech bubble nor the global financial crisis can lay claim to the cheapest ‘value of value’ anymore. Sadly, looking back, and wonderfully … forward, today has that honor.”
The phrase “value of value” refers to the cheapness of value stocks relative to the market as a whole. So, in other words, value stocks are now the cheapest they’ve ever been relative to growth stocks.
Domestically, fund manager Kim Shannon published “Waiting for Dawn” on the website for Sionna Investment Managers, the asset management firm she founded.
As a valuation-conscious fund manager, Ms. Shannon is of course a biased observer. Nonetheless, the short paper provides useful context. It notes that the current period of value investing underperformance is the longest since the Great Depression. “Today, value is more undervalued relative to growth (on a total annualized return basis) compared to any other time period since 1936, cheaper even than 1940 or 2000," she writes.
Ritholtz Wealth Management’s Josh Brown, who I also featured earlier in the week, published “Value Investing is Immortal” on Tuesday. Mr. Brown writes “Value investing is immortal. It cannot die. Perhaps the way it’s been traditionally practiced is dead. The metrics that the value discipline has been based upon are not and have not been relevant for a long time.”
Mr. Brown goes on to warn about value traps, stocks that are cheap for good reason – the profit outlook is deteriorating faster than valuation multiples - and that point is well taken.
It is Mr. Asness’ research I find most compelling and I’m now officially interested in a value investing strategy for my portfolio. I’m not sure what form it will take - a small position in a long short hedge fund seems most likely off the top of my head – but I’ll report to readers if a transaction takes place.
-- Scott Barlow, Globe and Mail market strategist
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Question: On March 25, the Federal Government advised that that RRIF minimum withdrawals could be reduced by 25 per cent for 2020. I receive minimum monthly payments from a RRIF and a LIF administered by a major bank’s brokerage. I called them to find out the procedure to take advantage of this 25 per cent reduction. They didn’t have a clue as to what to do and admitted they had lots of inquiries, but the management had not given them any direction. This is totally unacceptable. Can you advise what the procedure should be?
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