In 2017, traditional value investing has suffered some of the most eye-raising attacks in recent memory.
It started in June, when Goldman Sachs published a widely circulated report showing that following the value approach espoused famously by Fama and French returned a cumulative LOSS of 15% over the past decade. That is a remarkably bad performance in a climate where the S&P 500 has doubled.
This was followed up in October, when notable value-based hedge fund manager David Einhorn (in a note to Greenlight Capital clients) flat-out said he was having “questions regarding whether value investing is a viable strategy”. Einhorn and Greenlight are highly respected in the investment world. Nevertheless, his fund is underperforming the S&P 500 by over 11% in 2017, after trailing the market by 3% in 2016 and posting a horrid 2015, with losses of 20% vs. the market’s 1.4% gain.
Anecdotally, our experience in pure value strategies has not been particularly impressive, either. We followed Joel Greenblatt’s straight value Magic Formula screen “universe” exclusively for 8 years, with a cumulative performance roughly in line with the S&P 500’s. In the 2 years since, our two value-based ranked screens (“spells”) have underperformed the market by pretty substantial margins, while our growth-based screen has beaten the market by nearly 11% to date.
So what is going on? Is old school value investing really dying? Or are we in an unusual trough for the strategy, that will likely turn around and prove value as the “winning” investment philosophy once again?
Why Is Value Losing?
Both Einhorn and media mogul John Malone have focused the blame on one culprit: Amazon.com (AMZN).
To say Amazon has disrupted not just retail, but the business world at large is an understatement. And now, these prominent investors believe it is disrupting investment modeling itself.
