In his latest Q2 2022 Letter, David Einhorn discusses why investors should invest in companies that are buying back stock during bear markets. Here’s an excerpt from the letter:
Einhorn: The market is still dominated by the types of investors who we described in our year-end 2020 letter: those that either will not (index funds), cannot (untrained novice investors), or choose to not (valuation indifferent professional investors) have valuation as a cornerstone of their investment processes. A lot of these investors have had a tough go of it during the current bear market.
We believe that part of the reason value stocks have fared better lately is because value investors have suffered a full redemption cycle and there is hardly anyone left to sell. Another factor may be that some value stocks have become so cheap relative to the earnings of the underlying businesses, companies are able to buy back a large portion of their own market capitalizations.
We aren’t relying on other active investors to buy the stocks that we own, so we instead are choosing to emphasize investing in companies that appreciate this dynamic and are creating value both through their operations and through buying back their own stock at very low prices.
You can read the entire letter here:
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