Here’s a great interview with Tobias Carlisle on Goldstein on Gelt where he speaks about all things deep value investing.
On the question of why some value investing firms underperform and why he prefers his deep value investing strategy, Tobias says:
I’m always very careful criticizing other value investors, because it means that you are just about to go into a period like that yourself. It has been a very difficult period for value over the last seven years.
The last period of underperformance like this was the late 1990s. Then that led to a very good period in the early 2000s. Through this period, value has done okay. It’s just that the market has been so strong that the relative performance isn’t great.
One big mistake that I see – and that I’ve shown quantitatively to be an issue – is overpaying for return on invested capital; overpaying for growth.
Businesses don’t exist in a vacuum. They’ve got competition that desperately wants that very high return on invested capital.
It means you grow very quickly without putting too much into the business.
These businesses are assaulted all the time by their competitors, or companies, in adjacent industries or startups that are very well financed.
That return on invested capital tends to revert. It also happens on the other side, with poorly performing companies.
Lots of the competition leave the industry or they just fold because it’s so tough to survive. They tend to do better.
That’s why deep value investors do quite well looking for those companies that look like they are in a bit of trouble, but they can survive because they’ve got the balance sheet value there.
You get that improvement in the business and the narrowing of the gap between the discount to value. You get these two ways to win, which is why I prefer deep value.
Tobias’ interview starts at 8:27:
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