Is Value Coming Back?

 

While perusing Barron’s on Saturday, I wondered if I had picked up a publication entitled, “Hope for Broken-hearted Value Investors.” Note the articles, most of which should be behind a paywall:

Two things: First, this could just be a bounce off of the recent run-up in oil prices. Lots of value investors are hiding there, and I think they are early. Also, many people are hoping for a bounce in global growth, but there isn’t a lot to commend that in the short run.

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Second, there are too many people hoping for this. Lots of money is flowing out of value strategies, and the stocks are cheap. I’ve lost several clients, and may lose some more.

Oddly, it is the losing of clients that gives me the most hope. You need people to leave a strategy when it is down and out for the strategy to bottom. These are the sorts of people that create the difference between time-weighted and dollar-weighted returns. They will move to strategies that have outperformed, so they can lose money again.

As for me, I’m not changing. I like my stocks more than ever, and I think I’ve got good ideas throughout the portfolio. But I am not depending on value investing as a strategy turning upward now. I think we still need and will get more pain before it turns.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.