Value Investing - do cheap stocks outperform?

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Taggart
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Re: Value Investing - do cheap stocks outperform?

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Toronto Star

Cundill's legacy tests investor patience

By Rudy Luukko
Mutual Funds Columnist

What would Peter Cundill have done? I pondered this while reading There's Always Something to Do: The Peter Cundill Investment Approach, during what has been a dreary summer for investors.
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Re: Value Investing - do cheap stocks outperform?

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Investor focuses on the balance sheet

ME AND MY MONEY

Saturday, September 10, 2011
TONY MARTIN
Special to The Globe and Mail
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Re: Value Investing - do cheap stocks outperform?

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To access the article from The Financial Times, copy and paste the title below to google.

Templeton proved the long-term approach worked

By Jonathan Davis

Published: September 11 2011 12:17 | Last updated: September 11 2011 12:17
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Re: Value Investing - do cheap stocks outperform?

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Taggart wrote:To access the article from The Financial Times, copy and paste the title below to google.

Templeton proved the long-term approach worked
So, although he is probably most famous for having publicly called the start of the great US bull market of the 1980s and 1990s with uncanny precision, and his reputation rests on his exceptional skill as a stockpicker, he made another beautifully timed public call in March 2000, at the very height of the internet bubble, urging private investors to abandon technology shares and buy bonds instead.
With his own money he shorted a wide range of technology stocks and, expecting the Federal Reserve to slash interest rates, placed a huge bet on long-dated low coupon Treasuries, funded by borrowings in Japanese yen – a classic carry trade manoeuvre that yielded substantial profits for his charities and foundation over the next few years. Three years later, he was already warning about the potentially disastrous consequences of the emerging real estate bubble and levels of indebtedness in the US. In 2005 he said he expected the resulting “financial chaos” to last for many years.
Sounds like market timing to me. I find that a lot of the famous investors who advocate a buy and hold strategy also have a sell strategy that we don’t hear too much about.
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Re: Value Investing - do cheap stocks outperform?

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Templeton was a contrarian, not "buy and hold'.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: Value Investing - do cheap stocks outperform?

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Shakespeare wrote:Templeton was a contrarian, not "buy and hold'.
As are most Value investors. You still don’t read much about their sell strategies.
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Re: Value Investing - do cheap stocks outperform?

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deaddog wrote:You still don’t read much about their sell strategies.
Contrarians sell when the market (or sector) is euphoric, i.e. tech stocks in 2000, gold in 2011. They don't sell during a panic, i.e. 2008.

Describes me to some extent although I am not a 'capital c' contrarian or I would have committed 100% of my cash in 2009 and I would have sold my tech fund in 1999 rather than watching it swoon 10-15% first in 2000. A person does not have to get overly mathematical, or micro, about it. Macro signals are the 80% solution and that is good enough for most when one looks back in hindsight.
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Re: Value Investing - do cheap stocks outperform?

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A true contrarian is by definition a market timer. He is not a value investor (although he may buy the same stocks at the bottom) and not "buy-and-hold".

Most of us are mixtures in our strategies.
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Re: Value Investing - do cheap stocks outperform?

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"If you want to have a better performance than the crowd, you must do things differently from the crowd." ...Sir John Templeton
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Re: Value Investing - do cheap stocks outperform?

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Shakespeare wrote:Most of us are mixtures in our strategies.
Which means we are rank amateurs or we 'think' we know what our limitations* are and invest accordingly.

* Better to underestimate our abilities than overestimate
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Re: Value Investing - do cheap stocks outperform?

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AltaRed wrote:* Better to underestimate our abilities than overestimate
Nothing ventured Nothing ....you know
You just might surprise yourself :wink:
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Re: Value Investing - do cheap stocks outperform?

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deaddog wrote:
Shakespeare wrote:Templeton was a contrarian, not "buy and hold'.
As are most Value investors. You still don’t read much about their sell strategies.
Templeton on When to Sell
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Re: Value Investing - do cheap stocks outperform?

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Gotta admit that’s pretty vague. This from a guy that recommends buying all stocks that have a PE less than 2, eating the losers and letting the winners ride.
"If you buy all the stocks selling at or below two times earnings, you will lose money on half of them because instead of making profits they will actually lose money, but you will only lose a dollar or so a share at most. Then others will be mediocre performers. But the remaining big winners will go up and produce fabulous results and also ensure a good overall result."
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Re: Value Investing - do cheap stocks outperform?

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Personally, I'm hanging in there, still collecting the dividends.

-------------------------------------------

Sideways market can bring decent returns

ROB CARRICK
From Tuesday's Globe and Mail
Published Monday, Sep. 19, 2011 5:22PM EDT
Last updated Tuesday, Sep. 20, 2011 10:16AM EDT
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Re: Value Investing - do cheap stocks outperform?

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One of my favourite value investors of all time. Very conservative. Always looks at risk before profit.

--------------------------------

Jean-Marie Eveillard's Market Outlook: Lousy for Bonds, Maybe Better for Stocks

This value investor built a strong record with First Eagle funds. Here are his views on the state of the economy.

By Steven Goldberg, Contributing Columnist, Kiplinger.com
November 1, 2011
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Re: Value Investing - do cheap stocks outperform?

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I don't agree with everything he says in the article, but at least we have the data going back to 1927.

Do value stocks outperform growth stocks?

by Larry Swedroe
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Re: Value Investing - do cheap stocks outperform?

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Another fine article from Norm. Personally I've never hedged, and it's just as well.

Can Fairfax’s bear market strategy work for you?

NORMAN ROTHERY
From Saturday's Globe and Mail
Published Friday, May. 04, 2012 7:40PM EDT
Last updated Friday, May. 04, 2012 7:44PM EDT
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Re: Value Investing - do cheap stocks outperform?

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Taggart wrote:Another fine article from Norm. Personally I've never hedged, and it's just as well.

Can Fairfax’s bear market strategy work for you?

NORMAN ROTHERY
From Saturday's Globe and Mail
Published Friday, May. 04, 2012 7:40PM EDT
Last updated Friday, May. 04, 2012 7:44PM EDT
I'm just rereading Norm's article. (I was rushed yesterday - and short of time.)
I realize that a serious constraint for Norm is the limited word account he is given by the G&M - but the limted text does results in unanswered questions for me.

Like Q1 --
To hedge its portfolio against the possibility of a bear market, Fairfax takes out short positions against the S&P500 and Russell 2000, selling the broad market indexes so the company will benefit if they decline.
I'm wondering what fraction of these two indexes that Fairfax shorts at the same time overlap and negates his value longs that are also included in the indexes? A delicate balance?


Like - Q2 -
The data show that value stocks have outperformed over the long term. A simple strategy of investing in value stocks would have provided 12.4 per cent average annual returns.

Sticking to a hedging strategy through thick and thin would have hurt your results. Going long value stocks while shorting the market yielded only 3.5 per cent average annual returns.
My take. In the long run the market goes up. Thus a short (same as "hedge"?) by itself on the market in the long run is certain to result in a long term loss. Thus going in and out of market shorts - like Prem and Fairfax - is all about "market timing". I can understand and agree with long term value investing - but not sure about market timing via shorts. :?

Like - Q3 - the second chart is labeled via
Value and Hedged value in downturns - Decline from prior peak
What does decline from "prior peak" - mean? How is the prior peak defined and reset, etc? What is it really measuring and saying?

Norm - would these be fair questions for a "500 word PhD thesis" exam? :P

etc
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Re: Value Investing - do cheap stocks outperform?

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George$ wrote:Like Q1 --
To hedge its portfolio against the possibility of a bear market, Fairfax takes out short positions against the S&P500 and Russell 2000, selling the broad market indexes so the company will benefit if they decline.
I'm wondering what fraction of these two indexes that Fairfax shorts at the same time overlap and negates his value longs that are also included in the indexes? A delicate balance?
I'm not sure I understand your question. But the portfolio is quite different from the indexes.
George$ wrote:Like - Q2 -
The data show that value stocks have outperformed over the long term. A simple strategy of investing in value stocks would have provided 12.4 per cent average annual returns.

Sticking to a hedging strategy through thick and thin would have hurt your results. Going long value stocks while shorting the market yielded only 3.5 per cent average annual returns.
My take. In the long run the market goes up. Thus a short (same as "hedge"?) by itself on the market in the long run is certain to result in a long term loss. Thus going in and out of market shorts - like Prem and Fairfax - is all about "market timing". I can understand and agree with long term value investing - but not sure about market timing via shorts. :?
The short is the same as the hedge.
George$ wrote:Like - Q3 - the second chart is labeled via
Value and Hedged value in downturns - Decline from prior peak
What does decline from "prior peak" - mean? How is the prior peak defined and reset, etc? What is it really measuring and saying?

The fraction of the portfolio's maximum level to that date.
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Re: Value Investing - do cheap stocks outperform?

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Thanks Norm:
NormR wrote: I'm not sure I understand your question. But the portfolio is quite different from the indexes.
Don't think you can give a quantitative answer. But my question to myself - if the Fairfax portfolio long assets only overlaps with something like 3% of the index assets being shorted then they are almost independent of each other - but if the overlap is 30% then not so.
NormR wrote: The fraction of the portfolio's maximum level to that date.
??? Norm, I still don't understand what you mean.
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Re: Value Investing - do cheap stocks outperform?

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George$ wrote:
NormR wrote: I'm not sure I understand your question. But the portfolio is quite different from the indexes.
Don't think you can give a quantitative answer. But my question to myself - if the Fairfax portfolio long assets only overlaps with something like 3% of the index assets being shorted then they are almost independent of each other - but if the overlap is 30% then not so.
I think closer to 3% is the right way of looking at it.
George$ wrote:
NormR wrote: The fraction of the portfolio's maximum level to that date.
??? Norm, I still don't understand what you mean.
Ok, track the growth per dollar invested in the long-only value portfolio. Also track a rolling maximum. Now the fraction of the prior peak is = current portfolio value / max of all prior portfolio values.
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Re: Value Investing - do cheap stocks outperform?

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The Wall Street Journal

Why 'Value' Stocks Lag

May 25, 2012, 3:11 p.m. ET
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Re: Value Investing - do cheap stocks outperform?

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Research Study: Value Investing: Investing for Grown Ups?

Aswath Damodaran
New York University - Stern School of Business

April 14, 2012


Abstract:
Value investors generally characterize themselves as the grown ups in the investment world, unswayed by perceptions or momentum, and driven by fundamentals. While this may be true, at least in the abstract, there are at least three distinct strands of value investing. The first, passive value investing, is built around screening for stocks that meet specific characteristics – low multiples of earnings or book value, high returns on projects and low risk – and can be traced back to Ben Graham’s books on security analysis. The second, contrarian investing, requires investing in companies that are down on their luck and in the market. The third, activist value investing, involves taking large positions in poorly managed and low valued companies and making money from turning them around. While value investing looks impressive on paper, the performance of value investors, as a whole, is no better than that of less “sensible” investors who chose other investment philosophies and strategies. We examine explanations for why "active" value investing may not provide the promised payoffs.

----------------------------------------------------

77 pages long, but well worth a read.
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Re: Value Investing - do cheap stocks outperform?

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A value investor I've followed off and on, since the 80's.

Leon Cooperman Says Earning 13% In Stocks Takes ‘Average IQ’
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Re: Value Investing - do cheap stocks outperform?

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This will give you an idea of who's on the other side of the table when you're investing.

----------------------------------------

Bloomberg

How David Einhorn Was Out-Bluffed at the Poker Table

By Paul Wachter on July 06, 2012
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