This guest commentary was written by Jesse Felder.
I’m a die hard value investor to my core. I think when anyone learns about the “margin of safety” concept it either grabs them immediately or it doesn’t. When I first read about it in The Intelligent Investor it grabbed me and hasn’t let go since. While I believe it makes sense to approach investing in this way at all times, there’s an especially compelling case to be made for adopting a value investing framework today.
As noted by Rob Arnott recently, of all the various factors you could consider at present the value factor currently offers the greatest value. What’s more, it hasn’t been as attractive to be a value investor as it is today since the peak of the dotcom mania. Those who were investing back then should remember just how well value stocks did in the midst of the dotcom meltdown. For all the pain they suffered by lagging the market through the late-1990’s, value investors dramatically outperformed in the years after the peak.
It’s just this sort of risk amelioration that helps value consistently beat growth over the long run. While it may lag during the up cycle, value dramatically outperforms during down cycles. As they say, “defense wins championships.”
To the extent, then, that you believe general market risk is extraordinarily high, if you want to remain invested you should be doing so by utilizing a value approach. Because it has been so shunned in recent years, value today gives investors an opportunity to be both defensive and offensive at the same time. And it’s a framework, hedged (read more here) value (read more here) that is, I’m especially bullish on for the next several years.
This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.