The “Value Winter” is Thawing: Insights on a Potential Value Comeback

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Rasmussen discussed The “Value Winter” is Thawing: Insights on a Potential Value Comeback. Here’s an excerpt from the episode:

Tobias: Why don’t we start there? I think you and I have fairly similar approaches in the sense that it’s quantitative deep value. A lot of the research is probably US focused. It began in the US. Anyway, just because that’s the longest and best data set.

Dan: Yeah.

Tobias: I think that the question that I have had and that many people have had is that value really seems to have broken down somewhere between– It depends on how you’re counting it. But 2010, 2015 through to 2020, perhaps, I feel like there was a little bit of a recovery. Late 2020, I feel like it’s probably still ongoing, but certainly, last year was weaker for deep value, better for the growthier stuff. Do you think that’s a fair description, and what do you think of the drivers? Why are we where we are?

Dan: Yeah. So, I would say I think the worst period was 2018 to 2020, the value winter, where value just got decimated. And not only did value get decimated, but the opposite of value worked, if you were just long. I think the frustrating thing about the stuff that worked was it was sort of– we all like to think we’re really smart and educated, and we’re thinking meta analytically and we’re analyzing things. And the stuff that worked was just like- [crosstalk]

Jake: Stored or thinking.

Dan: -TV or stuff. It was just like, yeah, I’ve used Zoom the other day and that seems cool, so maybe I should buy Zoom stock. I’ve been getting so many Amazon packages. That must be a great business. Let me start buying Amazon stock, right? It was just frustrating, because you’re like, “Well, that’s not how the market’s supposed to work.” Markets are supposed to be efficient and all that stuff. It’s supposed to be priced in and the glamorous stuff isn’t supposed to work. I’d like to think that doing all this work to find some exotic microcap trading at halftime book that nobody’s ever heard of that’s like a monopoly on in some random industrial part would be rewarded. There’s some like spirit– [crosstalk]

Tobias: It’s got [unintelligible [00:04:41] on a screw that goes into a billion-dollar plane.

Dan: Yeah. And then shot–

[crosstalk]

Dan: Exactly. And yet, instead, the opposite was true. And then in the US, you had a real value recovery after 2020. Really, October, November of 2020 was huge. And then 2021, 2022 were quite good for value. And 2022 was great, because there was like the vengeance of all the stuff that I hate. All got totally obliterated.

Jake: [laughs]

Dan: They even had annoying names and annoying tickers, where the tickers was actually some word like laser or something, and you’re like, “God, this thing has to just burn in hell.”

Jake: [laughs]

Dan: And in 2022, it really did. And then in the US last year, it was all about growth again, all about growth. The growthier and the crappier the growth thing was, the better it seemed to do, frustratingly. And I think the saving grace for us was that internationally, value had a really good year. So, really good year. So, if you were long, deep value microcaps in Europe or Japan, you had a great 2023. And a lot of the growth stuff in those countries– A lot of international growth investors had a lot of money in China, which got hammered. And so, value looked pretty smart internationally. So, it was a little bit different. But yeah, in the US, again, it felt like the deeper value you were, the more you got obliterated relative to the benchmark. Nobody knew it was hard to lose money in investing in stocks last year, but relative to the benchmark, value underperformed last year.

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