Couple of weeks back, I did an interview with Timothy from DollarAndSense on #MyFirstLoss. For those interested in reading the full article, you may check it out here.
One of the questions touched on my investment philosophy today, which I wanted to further elaborate on that question here. Essentially, is value investing dead?
Just typing a quick search on google, that is probably one of the highest search phrases and I can understand why! Looking at the chart below, it shows the performance of the Russell 1000 Growth Index vs the Russell 1000 Value Index. Over the last 10 years, it can be seen that growth has been increasingly outperforming value.
While, I do understand that the debate on whether value investing is dead has been ongoing for the longest time, one has to really question if it warrants any merit when growth has been outperforming value for 10 years and counting.
Having invested for approximately a decade or so, there have been slight shifts in my investment style. From investing in net nets only, I have been slowly shifting the investment style to include growth companies too.
Do I believe that value investing is dead?
Well it really depends on how we define value investing. At the core, I am still a value investor. I believe as value investors, we should always remain open-minded and flexible in how we define value, especially when there are some real fundamental shifts in how we go about daily life.
I would not want to simply say that the world is changing; hence, we should change our investment style according to it. However, in some ways, there are some real fundamental shifts.
Imagine yourself owning a business; how you spend on advertisement has shifted from traditional media to social media. The amount of data collected from social media from what you search for to what you enjoy viewing more would help social media companies create a profile of you; hence, assisting companies to do more targeted advertisements today on social media.
Even as individuals, how have we been shopping? From basic necessities to electronics or even luxury items, we have been shifting our purchases from offline stores to online stores. Apps such as RedMart, Lazada, Shopee, Net-a-Porter and etc. has become ever more popular.
With the current COVID-19 Pandemic, it has definitely accelerated such digitalisation trends that we have been seeing pre-COVID. To quote Microsoft CEO, Satya Nadella, ‘…as COVID-19 impacts every aspect of work and life globally, Microsoft has seen two years’ worth of digital transformation in just two months of its third quarter (January to March period)…’.
This message is definitely not an isolated event. Having attended the recent AGMs of our 3 local banks – DBS, UOB & OCBC, they have all mentioned something in a similar vein. This is essentially, given the COVID-19 Pandemic acceleration the shift to digital banking, the banks are now reconsidering the branch strategy.
Therefore, it is crucial that as value investors, we should not remain adamant in sticking to the old styles because that is perceived to be what value investing is. That may have worked during Graham’s period; however, when there are fundamental shifts like how we go about our daily lives, we should rethink how we define value investing too.
Ultimately, the teachings of value investing from psychological biases to investment principles will always remain classic and timeless. However, we should be flexible in thinking of how we define value.