David Einhorn – Why Value Is Ripping!

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In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss David Einhorn – Why Value Is Ripping!. Here’s an excerpt from the episode:

Tobias: Let me do some choice lines from Einhorn’s letter.

Jake: Yeah.

Tobias: I tweeted this one out yesterday, but I like this one. “The market is still dominated by the types of investors.” It is germane to what we were just talking about, “Who we described in our year in 2020 letter those that either will not index funds, cannot untrained novice investors, or choose to not valuation different professional investors have valuation as a cornerstone of their investment process. A lot of these investors have had a tough go during the current bear market.” That’s a little bit gratuitous, but I just want to throw that in there anyway.

Jake: [laughs]

Tobias: This is the more interesting line. “We believe that part of the reason value stocks have fared better lately as value investors have suffered a full redemption cycle and is hardly anyone lifted so.” What do you think about that? Is that true? Is that fair?

Bill: I don’t know how you time the bottom.

Jake: Yeah, I think there’s something to that. No, you can’t. But if you were a value conscious, I don’t know what names we want to include in this bucket. But let’s say, whatever it is. And you think it’s worth. You think it’s a 50-cent dollar, which is the reason you’d be holding it. You’re probably not going to get rid of it until you get closer to that.

Tobias: Redeemed.

Jake: Yeah.

Tobias: Closer to value.

Jake: [laughs] Or, redeem, whichever comes first. But yeah, eventually, you run out of redeemers and you run out of those who lost the faith. And that’s I think how you bought them, we just run out of sellers.

Tobias: Well, I think Pzena. I was just talking to you guys before we came on, but Pzena is the stock that I have held. That’s Rich Pzena’s Investment firm, systematic value fund. They’ve got about $50 billion in assets. I thought they were cheap at the start of the year and they traded down 30% with everything else in this sell off. And now, they’ve got to take private, basically, without trading at the start of the year.

I think that it sucks if you hold it, because I don’t think it’s anywhere near for value where it’s going. But I can’t blame them. They’ve been beaten up for so long. That’s why they’re trading where they are. But that’s one of the concerns that I have that you get this and I think we’re starting to see it a little bit. If your valuation buyer, private equity buyer, this is a pretty good market to be hunting around. I’m surprised that there haven’t been more announcements so far.

Jake: Yeah.

Bill: One of the growth your ideas that I like is T. Rowe Price as a stock.

Jake: Because they buy growth your stocks or because–?

Bill: Yeah, you got an asset manager trading at 12 P/E. They’ve got a long, long history of being discipline growth investors. That’s a derivative way to play growth through value lens.

Jake: Yeah, I like that. it might be a good diversifier, if you’re a real value-oriented guy.

Bill: Yeah, and you want some growth exposure, but you don’t want to pay Asinine prices.

Jake: Or, just buy 3x Ark.

Bill: Could do that, could do that.

Tobias: Which way? 3x short or 3x long? Both? [crosstalk] perfectly hedged.

Bill: Yeah, that’s right.

Jake: Both. You can make the argument that that’s probably it’s either going one direction or the other. It can’t stay here. This is the wrong price wherever it is today. [laughs]

Tobias: Ark is up or down but wrong here.

Jake: It’s wrong here. Yeah. [laughs]

Tobias: That’s interesting. I don’t know.

Jake: I don’t know either. I’m just making– [crosstalk]

Bill: Diamond Hill looks– I was just checking that out because that’s another one. They’ve probably outperformed the market over the past year. But their P/E of 10, I don’t know, I guess, it’s where these things trade. I have no idea. I don’t know what I’m talking about. Disregard the words coming out of my mouth.

Jake: [sighs]

Bill: I’m not sure that I buy that the values ripping, because people are getting redeemed. But Einhorn is much smarter than I am. Is he the one that’s on Twitter?

Tobias: I think he said that, “It’s relatively outperforming because the value has already had its full redemption cycle and there’s nobody left to sell.” I think was the point that he was making. Although, that doesn’t seem to be true and the stuff that I hope. There are plenty of souls left.

Jake: [laughs]

Tobias: It turns out that every share is held by somebody who can sell it at any time.

Jake: Who are all these paper hands? [laughs]

Bill: Yeah.

Tobias: We got to get some Diamond hands in the value community. But why would you hold anything? It just goes down. It’s just brutal.

Jake: A lot of ways to lose money.

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