Is It Time For Value Investing To Return To The Limelight?

Is It Time For Value Investing To Return To The Limelight?

Here’s a great article from Peter Langerman at Franklin Templeton Investments where he discusses an optimistic outlook for value investing. Here’s an excerpt from that article:

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ValueWalk’s December 2021 Hedge Fund Newsletter: Hedge Funds Avoid Distressed China Debt

InvestWelcome to our latest issue of issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring hedge funds avoiding distressed china debt, growth in crypto fund launches, and the adapting venture capital industry. Q3 2021 hedge fund letters, Read More

We believe macroeconomic developments in the United States and elsewhere could prove a fillip to value investing after several years of underperformance.

The combination of suppressed interest rates and low volatility has contributed to an extended period in which the performance of value investing has lagged growth investing.

But as we shift from what may be perceived as abnormal conditions to more normal conditions—when there is some degree of volatility and a higher interest-rate environment—we think the equilibrium between growth and value will also normalize.

We are not predicting that there’s going to be a period of dramatic value outperformance versus growth. Rather, fundamentals suggest to us there should be more of an equilibrium reached.

And so, we think it’s an environment that’s more attractive for us as value investors than it has been for the past several years.

The Return of Volatility Offers Opportunity

The global political environment certainly makes daily life interesting and may from time to time play a role in increased market volatility.

We see volatility as an opportunity, particularly where the market is trading on shorter-term technical assumptions. Our job as long-term, bottom-up investors is to filter out the noise and to focus on fundamental valuations.

Of course, some of these developments do have impacts. Issues such as tariffs or taxation can have a real economic influence.

We look for those developments that are likely to have a longer-term earnings impact or that could affect stock valuations, rather than those pronouncements that might be reversed tomorrow, and then reversed again the next day.

We see this approach as an opportunity set. People tend to react very quickly to events, but our longer-term perspective can allow us to take advantage of situations where we think markets have over-reacted or misinterpreted.

Rising Rates, But Not Too Fast

We think most people have recognized that the period of artificially low interest rates seen around the world is not a permanent state of affairs.

Markets globally are emerging from an abnormally low interest-rate environment that has been influenced in large part by central bank decision-making globally.

In general, we consider rising rates to be reasonably positive, if done on a controlled basis. If there were to be too much of a spike in rates, that could prompt some recessionary concern. However, rising rates can be considered a reflection of better economic activity. Rising employment and economic growth are positives.

Over the past 12-18 months, our view has been that banks could be modest beneficiaries of a slightly rising-rate environment.

But “slightly” is the key word there.

There’s a risk if the US Federal Reserve (Fed) were to fall behind the curve in its current tightening cycle, it might find itself having to respond aggressively to too-high inflation.

An overly aggressive central-bank approach could suppress economic growth. But so far the path that the Fed and other global central banks have taken seems prudent to us.

Taking a Global View

As global investors, our investment decisions are not based on our view of a specific country, or even on our view of a specific sector within a country. Our decisions are based on overall valuations.

We want our stockpicking to be our differentiator.

You can read the original article here.

For more articles like this, check out our recent articles here.

Article by Johnny Hopkins, The Acquirer's Multiple

Updated on

The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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