In his recent interview on The Long View Podcast, John Rogers discussed what he learned from the multi-year slump in small cap and value. Here’s an excerpt from the interview:
Benz: What has the multi-year slump in small cap and value taught you that you didn’t know entering this period?
Rogers, Jr.: I don’t think that it’s actually taught me anything that I didn’t know already. Thirty-eight years at Ariel has taught me that you have to be a long-term investor, number one. You have to not get swept up in the short term, and that market psychology can just take hold for a while and last much longer than you could ever possibly imagine.
But eventually, things get back to normal, if you’re just patient. And so, these things happen. People are going to chase what worked yesterday. People get enthusiastic about what worked yesterday. They just follow the crowd. It can make it uncomfortable for a long time when stock prices disconnect from reality and real cash flows, but eventually things come back.
Businesses are only going to be worth the discounted present value their future cash flows, and it’s going to get back to normal. And this disconnect was the largest gap between value and growth we’ve ever seen. So, that just meant that when it came back, it was going to come back with a vengeance. And that’s what we’ve been seeing the last six months or so.
You can listen to the entire interview here:
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