Monday, August 11, 2008 5 comments ++[ CLICK TO COMMENT ]++

Societe Generale says Value May Start to Outperform Growth

Bloomberg has a story quoting Societe Generale as saying that value may start to outperform growth. However, further down the article, someone from Key Private Bank says that he thinks value will continue to underperform for a few more years.

Value investors have been hammered very badly over the last couple of years. I have mainly talked about Martin Whitman, Bill Miller, and the like, but Warren Buffett has also done very poorly this year, with his Berkshire Hathaway stock off almost 20% this year. Anyone buying Berkshire Hathaway shares early this year or late last year might be thinking they mistakenly invested in Bill Miller's fund ;)

Bill Miller, Martin Whitman and David Dreman, mired in the worst slumps of their careers, are poised once again to trounce the stock market.

If history is any guide, the value investors' emphasis on shares trading at low prices relative to cash flow and earnings will provide returns superior to the holdings of so-called growth managers. Growth investing, which focuses on companies with the fastest projected profit increases, beat value strategies for the first time this decade in 2007 and by 15.5 percentage points so far this year, the widest margin since 1980, according to data compiled by Paris-based Societe Generale SA.

The five prior times since 1952 that growth beat value two years in a row, the latter group recovered and won by 17 percentage points annually on average for seven years, the data from Societe Generale show.

LOL It's never a pretty sight when three of my main role models--Miller, Whitman, and Dreman--are doing worse than a dart-throwing monkey (or cash-loving Synchro ;) ) Societe Generale thinks the tide may turn as it has happened in the past:

If you are a value investor, now may be as good a time as ever. One can't be certain that things won't get worse but the window of opportunity is likely shrinking (unless you believe that the market has gone in to a long-term bear market like Japan.)


5 Response to Societe Generale says Value May Start to Outperform Growth

August 12, 2008 at 11:36 PM

A couple comments about Your Main Man and his self-destructive gambling behavior in the blogosphere: business-bright-for-blindfolded-dart.html falling-stocks-cheap-or-cursed

Btw, John Hempton's thoughtful blog is very much worth reading.

Also, a catch-up comment wrt to MBIA "contemplating" suing Ackman: I am all for it. The discovery process is going to be AWESOME for Ackman in terms of when those guys at MBIA know what and when.

Do it...MBIA!...DO IT!

August 13, 2008 at 10:51 AM

I don't know what your linked articles show. I mean, it's all rear-view thinking with a trader mentality. People don't believe in averaging down? LOL Tell that to Warren Buffett. Only traders say that.

As for Ackman being sued, I'm totally against it but it's funny that you think that Ackman will somehow come out on top. Recall that MBIA bankrupted Ackman's last fund. Corporations are generally far more powerful than funds. Ackman's funds are bigger now but if investors flee his fund (like they did last time) he'll have a hard time surviving.

August 14, 2008 at 1:01 AM

You least show some gratitude for the effort I made in cutting and pasting the links....It's really hard work! At least as hard as amateurs doing "fundamental" security analysis, or calcuating "intrinsic value"!

Juxtiposing YMM (Your Main Man) with Triple-O (Oracle of Omaha) is an interesting rhetorical trick when YMM used it in his 2nd quarter commentary. It's a nice try in confusing the issue, but...I am reminded of Lloyd Bentsen's retort to "Potatoe" Dan Quayle during the 1988 vice-presential debate: "Senator, you are no Jack Kennedy."

I would tell Your Main Man: "Gambler, you are no Warren Buffet."

When it comes to calculating odds or margin of safety, YMM has been abhorently bad. As a money manager, he should have been fired. But, knowing how even a broken clock is right twice a day, YMM will look "brilliant" again. Hell, he may even beat my "all-cash-all-the-time" strategy for the next 3 years. That'd be just fine. But let's not pretend that his 15-year track record until 2006 is some kind of unique accomplishment. At best, it is indistinguishable from chance.

PS: In case the Bentsen Retort went over your head, here is the wiki reference: Senator,_you_are_no_Jack_Kennedy

August 14, 2008 at 1:05 AM

Wrt to Ackman and MBIA, you missed my point: I DON'T CARE who wins and who lose.

All I want is a time- and money-wasting courtroom SPECTACLE!

August 14, 2008 at 12:40 PM

On a serious note, I DO scan everything you link. I might not read them fully but do check them out. For instance, I quickly dismissed your John Hempton blog because it is mostly economics and mostly the superbear opinion. It's worth reading but I already get that from a few others.

Anyway, my intention is not to compare Miller to Buffett. No one is as good as Buffett--either now or in the last 100+ years--so you wouldn't catch me equating Miller to him. My point was to attack the argument against Miller than one shouldn't average down, or that averaging down isn't some "valid" technique. It's perfectly fine. I just brought up the point of Buffett as an example ot show that Buffett often averages down if the price drops below his intrinsic value calculation.

You are arguing about margin of safety but--correct me if I'm wrong--you don't even use value investing. Aren't you more of a trend follower (hence don't even use margin of safety as value investing defines it)?

You argument is somewhat similar to Dave Merkel's argument against Miller in this post. Well, you should read JasonC's post in the comments area for a rebuttal. You will notice that most of the Miller detractors invoke macro arguments which have little to do with value investing (in fact, lack of reliance on macro is what separates value investing from other styles). One can say Miller doesn't know what he is doing or he isn't a good investor or whatever; but arguing that there is no margin of safety is a weak argument.

Synchro: "All I want is a time- and money-wasting courtroom SPECTACLE!"

What's this? Some scheme to enrich lawyers? You wouldn't have a past life as a lawyer, would you? ;)

Besides, aren't the battles between the bulls and bears, with 1% moves seemingly every day, enough entertainment for you? ;)

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