While value investing has had a difficult run, Validea CEO John P. Reese says not to give up on the discipline that Benjamin Graham created.
Since February 2007, U.S. value stocks have lagged the most expensive U.S. stocks by 2.6 percentage points annually, Reese writes. “The eight-year, seven-month stretch of underperformance is the longest losing streak on record, going back to 1926.” Does that mean good old-fashioned Graham-style value investing has gone the way of the dodo bird?
Reese doesn’t think so. “The idea of buying undervalued, fundamentally sound stocks still makes plenty of sense, and there’s no reason that such an approach should cease to work over the long haul,” he writes, saying that he believes several temporary factors are driving value’s underperformance. They include:
- The trauma of the 2008-09 financial crisis has caused many to become extra sensitive to any sign of danger in the market, likely leading many investors to avoid value plays, which tend to have short-term problems hanging over them.
- Weak global growth has likely led investors to reach for growth wherever they can find it–even if it is in overpriced growth/glamour stocks;
- The basic materials and energy sectors, which tend to be laden with value stocks, have been pummeled by the commodity collapse of the past year-and-a-half;
- The Federal Reserve’s extended period of ultra-low rates, which may well be distorting the growth/value cycle.
Reese says that often after going through rough periods, good strategies rebound with a vengeance. Because of that, he’s paying close attention to his Graham-inspired Guru Strategy, which is based on an approach Graham laid out in his classic book The Intelligent Investor. Reese looks at how this model works, and he examines a handful of stocks it is currently high on. Among those he highlights: clothing and apparel retailer Genesco.
Tagged: Benjamin Graham, John P. Reese, Validea, Value Investing
from Validea's Guru Investor Blog http://ift.tt/22PVWCU
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