The week’s news has to be crude’s run up to $135/barrel. The problem with value investing news is sometimes good stories fall too quickly as other stories of less quality get submitted. Eventually, the few of us that do vote for stories do not vote up the high quality ones and thus an excellent story is forgotten. So is the case about Francis Chou.
First the link: Francis Chou
The article brings up an interesting point, a good amount of value investors are lagging the market. The first person that comes to mind is Bill Miller and I believe he is down 19%. Ouch. According to their first quarter shareholder letter, Dodge and Cox is down almost 12% (S&P 500 was down a little over 9%). There are various other value firms who are under performing the market. Have they lost their touch or is it a sign of the times? I believe it’s the latter. One thing about contrarian-value investors is we are usually early to the party and leave early as well. We hate crowds.Just about every “guru” underestimated the magnitude of the housing/credit crisis and their performance reflects it. Mohnish Pabrai and Bill Miller come to mind.
Value investing is a proven strategy that will continue to work in the future. Unfortunately, many of the value investors missed the commodity train and are lagging. In the 90’s, most value investors avoided technology and lagged behind growth and technology funds. Now, not only did they miss the commodity boom, but were early in financials. A double whammy. So what now? Start cherry picking bargains. As the article states, just about every retail business is undervalued. As a matter of fact, Chou mentions Office Depot. Sounds familiar? Not to brag but…… I I wrote about Office Depot wayyyy back on February 24. Anyone reading this blog at the time could have researched the company, watch the stock plummet 20% after “worst than expected earnings”, and buy the stock at $10.xx. The stock is still a bargain and any positive comment made about the economy will push the stock higher.
A particular quote by Chou caught my attention in which he states:
“Look at our long-term record. We have always bounced back.”
Value Investing always bounces back. America always bounces back. It is a matter of being patient and ignoring the current headlines. Andrewc left an interesting comment on a recent post (Gurus Loading Up On Healthcare Stocks) in which he states:
I like seeing how the “gurus” picks are completely different than what the media is buzzing about. All last summer the funds managers were guying natural gas when the talking heads said that was dead money. Now, with gas prices going through the roof and TV programs talking constantly about rising oil prices, you see very few new positions in the energy. They don’t follow the momentum- they already had there positions and are enjoying big profits. And while CNBC and others hype up CHK and others, the gurus quietly move to others areas of value, like Healthcare. Watching when the experts enter and exit positions keep me from getting caught in the herd.
In summary, that’s what contrarian-value investing is all about.
1. Go against the crowd.
2. Wait for crowd to realize they made a mistake
3. Sell to crowd at a significantly higher price
As stated in my response, years from now CNBC will be flashing headlines dealing with financials and retailers. As usual, here is a classic Ben Graham quote that helps out when the headlines news is causing doubt in security analyses
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
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Alex, thanks for the feedback on Value Investing News. One thing I encourage everyone to do is leave a quick comment on particularly good articles you find on VIN. A comment will let the rest of us know that we should probably check out a particular post.
I’m also going to be adding a “friends/fan” feature where you can track what your favorite VIN members are submitting or voting on. This will also cut down on missed articles.
Finally, you can see the latest articles to receive activity by looking at the ticker at the top of the site.
Alex,
Great post, spot on. The funny thing is, this often goes in reverse too. Stuff that used to be popular, all the talking heads going nuts with praise, can now be found in the bargain bin because of excessive short-term ism (see: Sears). Buying beaten down and buying overlooked (what you were talking about) are two sides to the same coin, both very proitable.
Jeff,
As you might know, you have to be careful with whats cheap and what is useless (value from value traps). But like you side, both can be very profitable.
I do agree that value investing is a winning long-term strategy. Short-term noise should be ignored if you have 2 decades to wait for your investments to be ready for use.
If you plant a tree, you won’t cut it the next day in order to build a house, wouldn’t you?
“If you plant a tree, you won’t cut it the next day in order to build a house, wouldn’t you? ”
lmao, thats unless you think you are a value investor but trade in and out stocks….
I agree that value you investing always bounces back. The reason being that the investment is in a solid business, with solid finanials, within a solid industry. I am still learning (not always easy) not to be distracted by all the noise that the market makes “ding” “ding” “buy” “sell” “hold” “bearish” “bullish” “recession” “depression” get my point. But, for me at least, the challenge is to focus on identifying the businesses that have done well, are doing well, and are positioning themselves to do well domestically as well as globally. I have just started my investment journey and have a lot to learn. I find this blog very informative. Thank you for ublishing it. Please visit me on my “Stock Market Journey.”
Hey Alisa,
market noise is tough, but if you do things that keep you busy BUT will keep you informed on what is going on in the markets you will succeed. Starting a blog is a great start, I started this blog to keep me busy and has been a great tool in keeping track of ideas. Its also a great place to share your thoughts on the market. People will disagree with you, and thats fine as you will learn BUT if they disagree and you are right, it teaches you stay believe in your research. Finally, if you need help in growing your blog, feel free to e-mail me with any questions at alex.garcia6@gmail.com
thanks for taking the time to read my blog
Nice article.. Is it alright to translate few of your articles to Arabic in my blog?
Sure, make sure you give credit where credit is do
Hey – Thank you for the reply to my post. I will definately e-mail with questions. All of this is new… and exciting. I want to stay focused on developing my skills as an investor but I also feel obligated to create a blog that is informative, engaging, and exciting. So much to do… so little time.
Keep up the great work!