Posts tagged 'Value Investing'

Tackling the two-headed monster of efficient markets theory and the principal-agent problem

Being a traditional investor sucks, doesn’t it? You give your money to a fund manager, they charge fees and half the time don’t even outperform benchmark indexes.

Being a traditional equity fund manager sucks too. Investors give you their money, expecting you to find a stack of alpha — but at the same time they’re insisting your portfolio allocations don’t deviate TOO much from benchmarks, and getting antsy if your returns fall below trend. Read more

Prepare to buy Japan… with both hands

So says SocGen’s resident value investor Dylan Grice, who doesn’t go in for saloon bar nuclear physics.

From his latest ‘Popular Delusions’ note: Read more

More on the Buffett succession

No one – not even Warren Buffett – can hope to replicate Warren Buffett, Lex says. His performance has been extraordinary and cannot be explained by luck. Nobody can be expected to replicate this in the future, especially with the current gigantic portfolio managed by Buffett. Quite some shoes to fill for Todd Combs, the hedge fund manager who has been tipped to get started on what is described as a ‘significant proportion’ of that portfolio as Berkshire’s latest new investment manager. Moreover, Combs has about six months in which to show himself worthy before Berkshire shareholders at their next meeting, Reuters says — in which time he’ll have to get used to the media limelight. For his part, Buffett has told the WSJ that Combs is ‘a 100% fit for our culture’.

The strange death of the P/E ratio

Bid goodbye to the price-to-earnings ratio, says the WSJ. The ratio, once the holy grail of value investing, is becoming less and less important as economic uncertainty grows. Stocks plunged in the second quarters despite record profits from firms, after all, with the stock market’s average price-to-earnings ratio tumbling by more than a third in the past year. Spreads between analyst forecasts of companies’ expected earnings have also widened from $12 to $15, indicating a broad uncertainty in the market.

Well under a third of stock ratings are now ‘buy’ ratings too, for the first time since at least 1997, reports Bloomberg, with Berkshire Hathaway among them — despite a profits increase of 36 per cent. Economists have still used the heavily discounted P/E ratios to argue that the market has already priced in heavy losses from deflation or a double dip — to no real avail, notes FT Alphaville.