Value Investing: Tools and Techniques for Intelligent Investment

Chapter 20. Confused Contrarians and Dark Days for Deep Value^[20]

These are dark days for deep value. Our basket of Graham-like stocks in Europe is down 24% so far this year, a performance matched by the stock picks of many of the best long-term value investors. In a world dominated by investors with chronic ADHD, in which the vast majority of investors end up chasing their own tails, taking a long-term view will almost certainly generate periods of underperformance. Investors should keep the faith: value isn't dead. One lesson from the TMT bust is that value will return to glory when investors lose their faith in the cyclicals pretending to be growth. Watch mining and the EM related plays.

• Our recent client meetings have confirmed a pattern that our deep value screens have been picking up: times are truly torrid for those following a sensible approach to investment. This view is echoed by the poor performance of purchases from some of the very best long-term value managers, down some 19% so far this year. Of course, they also often hold significant cash levels, and tend to view price declines as opportunities to buy more of their favourite stocks (assuming nothing fundamental has changed).

• Unfortunately, in a world in which investors seem to have developed a chronic case of attention deficit hyperactivity disorder (ADHD), short-term underperformance is punished severely. However, underperformance may well be the by-product of a sensible investment strategy. The Brandes Institute ...