Value Investing
Value Investors Continue To Struggle In Choppy Market
A recent Wall Street Journal article properly named Value Hunting’s Sharpshooters Hurt As Financial Stocks Hurt Mutual Fund highlighted how some very well known value investors have struggled as financial stocks tumble. It’s not a secret that contrarian-value investors are usually early to the part and are among the first to leave. The trouble comes when we are TOO early. As the financial storm arrived, many value investors jumped the gun and started placing their bets. As financial stocks continued their slide, value investors increased their holdings to have a lower cost basis. Soon after, Bear Stearns collapsed and many thought that was the bottom and added even more money which turned out to be bad.
One part of the big loses, which the article highlights, comes from being to early in sectors where macroeconomic forces were against them. I know Bill Miller invested in housing related stocks just as the bubble was bursting. Pzena made a couple presentations on Fannie-Mae and Freddie Mac. Whitman has been in the middle of the thunderstorm as he continues to invest bond insurers. Even the contrarian maestro himself David Dreman has been burned by Washington Mutual. Now, Jeremy DeGroot, chief investment officer at Litman/Gregory made brings up an interesting point which I had not thought of:
“There’s a fine line between stubbornness and discipline”
Could it be that these so called “gurus” are to stubborn to admit they were wrong in the first place and have lost millions of dollars in assets?
Did Martin Whitman continue to invest in MBIA due to his much publicized war against Bill Ackman?
I have no clue what goes on in their minds, but some of their bets are questionable. Personally, I have been burned by investing in financials. American Insurance Group (AIG) appeared like the ultimate bargain as it traded at low valuation ratios. Ultimately, the stocks price lagged as management continued to announce more capital would be needed (after it said everything is fine) due to write offs,etc.. Stubbornly, I held on as I convinced myself the numbers do not lie. Finally, I sold and have not regretted that decision.
Richard Pzena aknowledges there are “not the best of times” but continue to be optimistic about the future
“But this is a once-in-a-lifetime opportunity for valuations, for all financials. When we look back historically, we will be writing about the irrational panic of 2007 and 2008.”
It may be a once in a lifetime opportunity, but at the same time Pzena has lost a ton of money in one year. Its tempting to jump into financials but it appears there is are more write offs/downs to come. I am in the Bruze Burkowitz camp in which he continues to say ” I have no idea what is on their (finiancials) balance sheet, and I am not sure the CEO/CFO’s know what they hold.” If I had to invest in financials, USB and WFC appear to be the only one’s that have avoided the mess.
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Tags: Discussion
One comment for “Value Investors Continue To Struggle In Choppy Market”
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I think you are right to be mulling over the performance of these great value investors. If we are to learn from them it’s important to be aware of their weaknesses as well as their strengths. Even Mr Buffett has been early and perhaps too concentrated in banks - at least that’s how it appears at the moment.
Whilst most value investors have been struggling during the credit crisis a handful of managers did predict and prepare for it. Robert Rodriguez and Jean Marie Eveillard for example have both been warning of the impending dangers in the financial sector for some time. I say hats off to them. And I wish I had listened to them more carefully. I’m certainly going to keep a careful eye on what they are doing in the future.