Value Investing, Videos

James Grant and Jason Zweig – Value Investing Under Pressure And The Pressure To Go Passive

The investment sea change. Value is out, growth is in and passive keeps beating active. Financial thought leaders James Grant and Jason Zweig weigh in on the lagging performance of value investing.

Lagging Performance Of Value Investing

Value Investing Under Pressure And The Pressure To Go Passive

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Transcript

Well given the lagging performance of value investing I asked Grants and Zweig how useful that roadmap is today.

Well I think there's a couple of ways to look at it. The first is that you know the real utility of value framework is that it helps modulate your emotions as an investor. You're much less likely to get carried away at market peaks and with luck a little bit less likely to get carried away with despondency and the lows although I'm sure Jim would say that's been tested quickly. And I think there's a discipline it gives you a discipline that's very very important price discipline but it has been a long long voyage in the wilderness world of Phil's death of the aristocratic and wise.

Head of Lazard Freyr in New York for many years was in his company and he was consoling someone also in the company a period of performance that he said that his ways to the center. I'm sure you have a bad decade. I assume you know it's. So we have yard who is a very accomplished and I think a friend of yours said Does it really matter if you hold a stock for five years and it does nothing and then your 5 it goes up 50 percent. Is that a problem is the way. Well the weight is a problem again and Jason has the authority on behavioral finance but we are as a species impatient.

Yeah look that up. Yes think we are.

We are and we're social. And part of the impatience comes from looking to your left and looking to your right and seeing somebody who's doing this.

And. I can't stand that.

It's been over a decade that the value has underperformed. So you know that's not five years. That's

really it is. It is a decade. Yes is in a day. So nothing. So these cycles do persist and what you have to I think what you have to look at this is is this the fundamental value proposition. So what's the opposite of value what investing is it like non-value investing. Is it like overpaying for great success. Is that the approach. Yeah well that works these days also other ways buying heavily shorted stocks works.

It's been going on a while. That doesn't necessarily mean that's simply forwards it's lower quality stocks. That's also working. So are we supposed to buy into that because it worked. Well yeah. Some people say Well yeah no. No no no. Consuela No we should not. We were put on this earth for better things than that. All right. How's that for a moralistic approach.

That's a very and Graham himself wrote about what he called the new era approach in the 1930s and he said which turned upon the earnings trend as the sole criterion of value and he said it was certain to end in an appalling debacle and that was in the 1930s. So how likely are we to end this cycle in an appalling debacle. You know.

Bull markets and for that matter the fashion of particular styles of investing during bull markets can and in a myriad of ways they can end in a whimper that can end in a bang. They differ with a smile that never with a smile and they can end with nothing. They can just sort of dwindle away. It's very hard to say what will happen or how it will happen. I'm going to say it's going to end very badly and for this reason.

I think are two things Jason has written about one of them.