Value Investing: Is It Dead?
The Dynamic Wealth Report
November 11, 2010
by Jay Chernoff, Editor
Most investors are familiar with the concept of value investing. Warren
Buffett popularized this age old method by earning massive returns year
after year.
In a nutshell, value investing focuses on identifying undervalued
companies. Seems pretty simple right? You just go out and find some
cheap, mispriced company, load up on the shares, and watch it soar.
Of course it’s never as easy as it sounds.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
Just look at the financial crisis of 2008. Value investors got creamed
during the huge market selloff and its aftermath. Though to be fair, so
did growth investors, income investors, commodity investors… well you
get the picture.
Here’s the thing…
Value investing has really lost its luster this year. I’ve read several
articles in places like The Wall Street Journal and Barron’s about how
many investors have moved away from picking individual undervalued
companies. Instead, they’re focusing on ETFs.
It’s a major change of pace for investors.
So what’s the deal?
First off, and most importantly, Exchange Traded Funds (ETFs) are
growing by leaps and bounds… and they’re attracting piles of investors’
cash.
You see, ETFs are a convenient and cheap way to trade the market. They
come in all shapes and sizes… so they appeal to all types of investors.
With all the compelling ETF choices out there, it seems like investors
aren’t interesting in picking individual companies anymore.
And that’s not all…
The markets are moving on macro news more than ever before. Major
economic news and events are now catalysts investors base their
investment decisions off of. Individual company news isn’t in vogue.
So what’s that mean to you? In a word… correlation.
Markets are extremely correlated with each other right now. Part of this
is due to all the major macro events occurring in the world today. Part of
it is due to the growth of ETFs. But no matter how you slice it, many
equities – and asset classes in general – are moving closely together.
For instance, the returns in large cap companies, small cap companies,
and foreign companies are all very similar.
It’s because many of these asset classes are moving on the same news.
Potential government debt defaults, political uncertainty, quantitative
easing, and currency devaluations are just some of the big picture items
moving the markets these days. And they’re having a global impact on the
financial markets.
Meanwhile, individual companies are being lost in the shuffle.
These days, ‘buy and hold’ are four letter words in the investment world. Being a buy and hold strategy is an aspect of value investing which is
working against it.
It’s not totally without merit. Buy and hold would have earned you a
negative or minimal return over the last decade.
But here’s the thing…
While ETFs, market correlation, and the rumored death of buy and hold
are putting a damper on value investing, keep in mind they’re all
short-term trends. The fashions are changing.
Right now, value investing isn’t in fashion.
But here’s the key… value investing is not dead. It’s not even on life
support. It’s just taking a nap. Sooner or later, the merits of value
investing will take the main stage once again.
ETFs may be hot right now. Correlations might be high. And perhaps buy
and hold is on the backburner.
But here’s the bottom line…
When value investing starts posting decent returns, investors will
return to it in droves. After all, nothing is more in fashion than
making money.
One of the biggest winners in ETF space this week is the United
States Gasoline Fund ETF (UGA). UGA is up over 3% today. This
ETF tracks the price of gasoline. The big increase in UGA is related to
the recent surge in crude oil prices and the approach of the heavy
Thanksgiving travel period.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map