Value investor drought

Pity the poor value investors.

Although they have excellent long term records, value investor results over the past couple of years have been poor relative to the market.

Consider Bill Miller at Legg Mason. After beating the S&P 500 for 15 years in a row, he has had a dreadful 2 1/2 years. His performance has been so bad his mutual fund investors are leaving in droves.

Does this mean value investing no longer works? Should investors pursue another methodology? If value investing hasn’t worked, what has?

The answer is momentum. If you simply invested in the things that were going up, you would have easily beaten the market. Invest in natural resources, such as oil or gold, after they went up and they’d just keep going up.

Is that a good way to invest now? Not normally, and probably not going forward.

You see, the market goes through periods when one thing works and others don’t. This rarely lasts because everyone jumps on the bandwagon until it’s full and no one else is left to jump on board. I think we’re close to that point now.

The last time momentum out-performed value investing was in the 1998-1999 period. After that, value investing clearly beat momentum investing for several years running.

Usually, when the market goes down, value investing handily out-performs. But in this down market, momentum has been winning. You have to go all the way back to the early 1990’s to find a similar situation. Guess what happened after that? That’s when Bill Miller’s record 15 years of out-performing the S&P 500 began.

Don’t pity the poor value investors–JOIN THEM. Every time value investing has performed poorly in the past has proven to be an excellent time to get on the value investing bandwagon. Right now, people are getting off, and that’s precisely why you should be getting on!

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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