The last decade and specifically the first six months of 2018 have been an atrocious period for value investors. The one man’s loss is another man´s gain; to no surprise, other styles, like growth, experienced outstanding returns. The recent low growth, low interest rate, low capital expenditure environment and extensive monetary policy has largely benefited growth stocks and led to considerable headwind for value stocks. However, we should not assume that trends are meant to be broken for the winner from yesterday, in particular when it comes to the world of investing. Nevertheless, we do not believe that one stock, sector, country, or style will inevitable always outperform, why would it? The sources of returns are the expectations and uncertainties imbedded in valuations. Focusing on valuation (value investing) rather than lofty growth assumptions has in the long-run outperformed other styles by a large margin. Major headwinds, which have led to large valuation advantages for value stocks, are turning the tide, which offers great opportunities for future outperformance. Now it is time to trust the process.
“Investing is simple, but not easy” Warren Buffet, Value Investor
Investing is by no means easy; however, at the end of the day, it is simple. Focus on what matters, accept that many roads lead to Rome, and accept that sometimes you will look like dumbest guy in the room and sometimes like the brightest. Occasionally this happens for the right reasons but now and then it will happen due to noise in the market. The questions we must pose ourselves are: Should we now assume the market to be knowledgeable enough to trust it to lead the way and give up on value investing? Do high valuations, which equal high expectations and low uncertainty really reflect the future for most companies in the market correctly? Every investor, and therefore the market, is vulnerable to the danger of succumbing to the temptation of acting pro-cyclical and thereby adapting his approach at the worst possible time. Especially in times of underperformance it is important to continue following your beliefs, given that they are based on solid fundamental reasoning.
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