The other day I wrote a piece “When will chasing the hot stock no longer work?” which outlined how “price momentum” was the main driving factor during the recent stock market rally. I went through how value stocks have been sucking wind ever since the Great Financial Crisis.
The article got a lot of feedback, but there was one email that I wanted to share. It comes from Andy Mayer – Albion Green founder – a financial markets trainer, lecturer, consultant, and just all-around-good-guy. He sent me an interaction he had with one of his students:
This brought to mind a conversation I had with an undergrad finance student last month. At a course presentation, students were comparing various stocks using a few standard valuations, and this student was recommended to buy the stocks with high PE. Myself and the other trainers told him that we compare valuations to find under-valued stocks, not to buy over-valued ones. But he was not swayed, he was firmly of the opinion that good and growing companies have high PEs and companies that are badly run have low PEs. Finally the debate was settled when he said – look, there is real empirical evidence that buying high PE stocks and selling low PE stocks is a winning strategy. And over the past few years he was right of course!
This is the way that young people in the markets think these days – they have been trained by the market to think totally differently to the old school, and until value starts doing well, they will be the ones making money.
Ahhh… Millennials… You gotta luv ‘em. Fully convinced they know better, but making the exact same mistakes every other generation has made.
Now don’t take my chiding as a belief we are somehow better. My generation had the “DotCon” bubble. There were plenty of stock-market-wunderkids who were “experts” at picking stocks for the “new economy”.
Heck, we even took one of these knobs and elevated him to mythical status after he made this speech:
