Several years ago, I wrote a post titled, “There Has Never Been A Better Time To Be A Thinking Investor,” which featured this quote from Warren Buffett:
“What could be more advantageous in an intellectual contest – whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?” –Warren Buffett, 1985 Berkshire Hathaway Letter to Shareholders
Buffett was extolling the virtues of employing a traditional value investing discipline in markets at a time when many were beginning to embrace the “Efficient Market Hypothesis” leading them to adopt a passive approach. Obviously, that trend has only gained a great deal of momentum in the nearly four decades since, thus the advantage for “thinking” investors has grown commensurately.
This trend has now gone so far that some, like hedge fund manager David Einhorn, claim that value investing may, in fact, be dead.
"I don’t know that it ever comes back. Most of the value investors have been put out of business. Nobody knows what anything is worth." –@davidein https://t.co/syBjSvokYJ pic.twitter.com/vzRfKfX3mq
— Jesse Felder (@jessefelder) October 27, 2022
To be clear, Einhorn, much like Buffett did years ago, sees the demise of traditional value investing as a tremendous advantage to the few adherents remaining, a topic he discusses in great detail in a wonderful recent podcast interview with my friends, Grant Williams and Bill Fleckenstein.
This was a wonderful conversation with one of the few value Jedi masters out there keeping the discipline alive. Thank you @ttmygh and @fleckcap for putting it together and sharing it with all of us🙏. https://t.co/Q1pg5tIMwO
— Jesse Felder (@jessefelder) November 8, 2022
In many ways, dedicated value investors like Einhorn have become like Star Wars’ Jedi masters, “a once powerful presence in the markets forced into hiding,” as another friend of mine, Eric Cinnamond, writes. Eric is an accomplished Jedi master in his own right who generously shares his views (from his metaphorical cave on Tatooine) at palmvalleycapital.com. I fervently read everything he writes.
'We've often compared the remaining value investors to the Jedi in Star Wars—a once powerful presence in the markets forced into hiding! Their near extinction can be traced directly to the Fed and the overuse of unconventional monetary policy.' https://t.co/Vyuyawy2RX
— Jesse Felder (@jessefelder) November 3, 2022
Also effectively taking advantage of the massive Death Star the stock market has now become is dedicated value veteran, Chris Bloomstran. Wielding his lethal light saber of wit and wisdom over on twitter, Chris brings a degree of expertise and levelheadedness to the social media platform that is far too rare. For this reason alone, he’s a must follow account for me.
The August 1982 “moment” followed 17 years of high inflation. The DJIA declined from 1,000 to 778, ending at a multiple of 7x earnings on a 3% profit margin. You lost 75% to inflation and time. Today? High-teens multiple (thanks, bear) on a 13%+ margin. August 1982? Dream again. https://t.co/4Oqz6Wx1oP
— Christopher Bloomstran (@ChrisBloomstran) July 29, 2022
They may be far fewer in number than they used to be but traditional value investors are still out there, harnessing the power of “the force” in markets. Investors still interested in “thinking” their way to wealth (rather than giving in to the dark side) would do well to learn from these masters of their craft. Because the opportunity set may be greater today than ever before.
Value Spreads Are Back to Tech Bubble Highs: Is Everyone Out There Cray-Cray? https://t.co/RHHsk8YkK0 by @CliffordAsness pic.twitter.com/sc4HD2FKen
— Jesse Felder (@jessefelder) August 9, 2022
