Woe Betide the (So-Called) Value Investor An alternate possibility: investors won't tolerate real value investing. There are probably two hallmarks of the deep value investor; that is, of the investor who's after the "value premium" found in the academic research. First, they're willing to buy shares of firms that are either disasters or disastrously misunderstood, and then hold them for the 3-5 years that it might take for the corporation to correct its path or for other investors to realize that they'd been misjudging it. Second, they're willing to buy nothing when there's nothing to buy.
Jeremy Grantham calls it "career risk." Value investors tend to get fired before deep value investments play out, so they don't make those investments.
As a result, most value investors are "relative value" guys: fulled invested, often buyers of "the best of a bad lot." Here's a quick test of my guess: I used Morningstar's fund screener to identify all US stock funds in the "value" equity box then looked at (1) where their portfolio centroid - on Morningstar's stylebox grid, it's the black dot representing the placement of the heart of the portfolio from micro to mega and deep value to rocket growth - was and (2) how much cash they had.
574 value funds. I picked the first fund listed on each of the first 15 pages of results. Here they are:
AAM/Bahl & Gaynor Income Growth: value/blend border, 6% cash
American Beacon The London Co Inc Eq: value/blend border, 6% cash
Artisan Small Cap Value: value/blend border, 7% cash
Boston Partners All Cap Value: value/blend border, 0% cash
Columbia Dividend Income: value/blend border, 3% cash
Delaware Mid Cap Value: value/blend border, 0% cash
Dunham Alternative Income: value/blend border, 3% cash
Fidelity Advisor® Value: value/blend border, 5% cash
Franklin Balance Sheet Investment: value/deep value border, 10% cash
Great-West Putnam Equity Income: value/blend border, 2% cash
Hennessy Large Value: middle of the value box, 0% cash
Invesco Exchange: value/blend border, 1% cash
JPMorgan Value Advantage: value/blend border, 8% cash
Manning & Napier Equity Income: middle of the value box, 2% cash
Nationwide US Small Cap Value: value/blend border, 0% cash.
Of a sample of 15 value funds, just one is positioned to invest in the sorts of deep value stocks that most of the research isolates.
There are just two self-proclaimed "deep value" equity options: Towle Deep Value TDVFX (value/deep value border, 2% cash) and Deep Value E T F DVP (solidly deep value, 0% cash). Of the funds we've covered, only Pinnacle Value PVFIX (deep value, 43% cash) strikes me as seriously pursuing the value premium: Mr. Deysher buys only when a stock is at historic lows but the business seems sound, which leaves him with investors' disdain and the best risk ratios (Sortino, Martin and so on) around.
For what thought fodder that offers,
David
Jason Zweig: The New Era Of Low Stock Returns
Ukraine Bondholders’ Tough Talk Signals Debt Deal Won’t Be Easy @Crash I've been increasingly perturbed by some of the investments made by PREMX management for the past 6-9 mo; they seem poorly informed and ill-advised. Since we entered this fund about the same time, I feel "a kinship" with you, and wonder where you're at with this one. I have ave. cost down to 12.6
5, doing the up-see/down-see like you've probably been doing, but am considering a trim. Gettin' tired of playin'' primarily due to what I've been seeing lately.
Woe Betide the (So-Called) Value Investor Jason Hsu and Vivek Viswanathan of Research Affiliates have posted an essay on the RA site with some data demonstrating how poorly value investors fail to capture the value premium that should be captured with this investment stategy. The average value investor doesn't earn anywhere near the reported value premium, under-performing the S&P
500 by -92bps,
even before taking fees into account. The dollar-weighted return vs. buy-and-hold is even worse: -131 bps. There are several factors at play that contribute; if value investors hope to capture the premium, they need to get their act together, remember that the value premium itself is mean-reverting, and stop trend chasing.
http://www.researchaffiliates.com/Our Ideas/Insights/Fundamentals/Pages/365_Woe_Betide_the_Value_Investor.aspx
The One Best Mutual Fund To Hold Forever @Junkster - If you were to put a gun to my head and force me to own only one fund for 30 years or longer, I guess it would be PRPFX (assuming continuation of management and fee structure, which is unlikely). I know we disagree on that and your comment was intended tongue-in-cheek.
Yes, many other investments, including junk bonds and the S&P, will outperform that fund over time. No argument there. But, assuming the economy goes through 4,
5 or more different cycles over that 30+ year period (inflationary, deflationary, stagnation, rising rates, falling rates, etc.) I like the fund as one that will not scare the hell out of a conservative investor during those cycles and will at least keep pace with inflation.
The original concept behind PRPFX (which I believe is still valid) was that it is designed to preserve purchasing power over a variety of market cycles and economic conditions (not to make you filthy rich). The fact it has gone nowhere for several years now does not concern me. We could argue about the current inflation rate - but officially, anyway, it's below the Fed's 2% target range. The fund represents about 8% of my investments. We presently take annual IRA distributions - but never from PRPFX. As a percentage of investments, therefore, it is expected to grow over time.
Regards
Ukraine Bondholders’ Tough Talk Signals Debt Deal Won’t Be Easy
The One Best Mutual Fund To Hold Forever None.
Managers grow old, become senile, greedy, develop substance abuse or mental issues, quit, retire, get replaced or die. Fund companies are bought and sold all the time. I'd imagine fees are more often increased by new owners rather than the other way around. (Natixis buying Gateway is a case in point.) Publicly owned companies like Price and Franklin are subject to shareholder pressure to maximize value and profits. Costly shareholder lawsuits are common and could result in your favored fund being restructured or dropped from the lineup. Regulatory interference can have the same impact.
Index funds are not immune from fee increases and management decissions - though probably a better life-long choice than actively managed ones. The indexes themselves are ever-changing as companies are added and dropped. Changes in tax laws can also influence the desireability of a particular holding. The question as posed by the byline seems to me to lack merit. (I'm trying to be kind here.) However, Jack Bogle is fond of the Wilshire 5000 Total Stock Market Index as a long-term hold - and I suspect he's on to something.
