Last year we highlighted what we deemed the “value investing pain train.”
In 2015, cheap high-quality stocks started getting crushed by expensive junk stocks. Here is a recap of the carnage.
In many respects, value investing is a lot like Terry Tate — the huge “office” linebacker that would crush employees who made mistakes. His nickname: the “pain train.”
SAT answer: Terry Tate is to office employees, as value investing is to investors.
The value investing pain train: a visualization
Let’s look at the progression of the value investing pain train.
Here is a link to the source data: Price/Quality portfolio data. We examine value-weight returns for the cheap high-quality quintile and the expensive low-quality quintile. The daily returns run from 1/1/2015 to 1/31/2016. Results are gross of fees. All returns are total returns and include the reinvestment of distributions (e.g., dividends).
- Beginning of summer…value is getting cheap.
- End of summer…value is super cheap.
- End of the year…value is a stupid strategy.
Fast forward to 2016. Below are the results for January from 1/1 to 1/31. Value started off on the wrong foot, possibly due to redemptions from 2015?
Is value ready for a rally? Or is this a head fake?
The value investing propaganda starting coming out hot and heavy in February. Rob Arnott led the charge at Research Affiliates, with a piece with an amazing title, “How Can Smart Beta go Horribly Wrong.” A simple summary is that value investing has gotten destroyed and seems like a great opportunity. Buy RAFI products. Now. The public relations effort on behalf of value investing seems to have worked: February was an epic month for all things that buy cheap out-of-favor firms.
Great news for all of us who traffic in the stock market’s trash can.