During his recent interview on The End Game Podcast, David Einhorn explains why value investing will continue to be a very successful strategy. Here’s an excerpt from the interview:
Einhorn: Sure, I welcome the opportunity to elaborate on what I said and what I meant, I quibble only slightly with your introduction. Value investing is the search for investment things that are undervalued. It’s not just investing, right?
So like index investing is not value investing, but it is investing, right? But you’re not really focusing on what the value of things are, you’re just trying to get like the market return or something like that.
I want to distinguish between what I said and I think what maybe people interpreted. I wasn’t saying that value investors are going to do poorly or that value investing is not going to be a successful strategy. I actually think it’s going to be a very successful strategy, and I think that we are in progress of performing much better than we did over the last period of time, but what I’m saying is value investing as an industry has been decimated and I don’t really fully see it coming back.
I mean it used to be that you had this active management industry and it was very large and everybody was following Peter Lynch or whatever the heck they were doing and they were trying to figure out what the best stocks to buy.
And you would look back and say, wow I wish it was like 1955 and I could be Warren Buffett and there’s nobody reading annual reports but me and I can read these things and find companies, it’s three times earnings or four times earnings that nobody’s paying any attention to.
And I can call my broker and this isn’t so hard if you can actually just, you know, read some financial statements and you have the time to actually do that.
So the industry mushroomed and it became a profession that a lot of people pursued, and when I entered the business I was trained by somebody that was a value investor and I started a fund that was a value investing fund, and I hewed to the long-term view that over time value investing outperforms growth investing because you have a margin for safety.
So, when you make a mistake in a value stock, you get most of your money back whereas in a growth stock, as it was taught at the time, they were more momentum stocks and so when the news changed you had to get out relatively quickly and that was very hard for those investors to do.
You can listen to the entire discussion here:
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