The Investment Strategy Pioneered By Warren Buffett Is In Crisis (CNBC)

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CNBC reports that Warren Buffett’s value investing long/short strategy generated a 15 percent cumulative loss in the past decade and negative returns in 6 out of the last 10 years, according to Goldman Sachs. Before that, the value strategy had a successful run of more than 70 years.

Here’s an excerpt from the CNBC article:

Wall Street is questioning the value investing strategy espoused by legendary investors such as Warren Buffett after a decade of weak returns.

The value “strategy’s poor performance has coincided with a swell of assets into passive equity investment strategies as well as quantitative and ‘smart beta’ funds,” Goldman strategist Ben Snider wrote in a report Wednesday entitled “The death of value?”

“The disconnect has led investors to question the future viability of value investing, which has been embraced by the academic literature and espoused by investors including Benjamin Graham and Warren Buffett,” he added.

Snider noted the value investing long/short strategy based on Eugene Fama’s and Kenneth French’s work generated an average annual return of 5 percent from 1940 to 2007.

“The simple strategy – buying stocks with the lowest valuations and selling those with the highest – realized a theoretical gain in seven out of every 10 years and never spent three full years below its previous high water mark,” he wrote.

You can read the full article here.

 

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