It is no doubt that Value Investing is one of the most celebrated Investment Strategies around the world. Benjamin Graham who is known as the father of Value Investing who developed his own school of thought which is now allowed by Warren Buffet.
But, all these years later from its first inception with an abundant number of other strategies within the financial sector, does Value Investing still hold up?
We asked some of the top managers on smallcase for their opinion.
1. Is Value Investing perhaps back from the dead? Or was it always alive?
Jiten Parmar from Aurum Capital was quick to shoot down such claims.
“ I believe value investing can never be dead. It may underperform for brief periods, but to write its obituary may not be right. In all this QE and NIRP, ZIRP scenarios people don’t look at valuations closely enough. But when the situation normalizes, people will look at things like earnings yield and valuations. ”
2. How Value Investing is perhaps picking up again in relation to Microfinance?
Ashwini Shami from Omniscience Capital had a simple yet interesting answer.
“ Value investing relates to buying stocks below their intrinsic value and does not necessarily imply buying stocks that have fallen in price. For lending institutions, intrinsic value is closely linked to net worth. For different borrower pools, the probability of volatile cash flow streams from them is different. A volatile cash flow stream makes certain kinds of lenders more risky and hence one should evaluate the impact of expected non-performance of the assets pool before taking the plunge. ”
3. Is Value Investing alone ideal for Indian equities?
Dick Hosy Mody from Ethical Advisers gave us an insightful perspective.
“ In growth markets, especially emerging markets like India, China, Indonesia, etc, empirical evidence has suggested that “growth” or “momentum” clearly scores over “Value”. So, the simplistic answer is NO. This is clearly demonstrated by the huge polarity in valuations across sectors, i.e., FMCG, Private Banks, new age Tech companies, (now even the likes of Zomato post listing) vs traditional energy, telecom, PSU stocks etc. We have witnessed a constant EXPANSION of multiples for the former and the opposite for the latter! This can be very different in developed markets take for example Canada, UK, Japan, Nordic countries like Sweden, Norway etc where a combination of demographics, saturation of growth levels, or even lack of diversified sector opportunities, will favor value investing (purely in the absence / lack of visibility of “growth”) ”
4. Why/Will 2021 be the year of Value Investing?
Ronak Gala from Tarrakki had some brilliant insights on this matter.
“ Value Investing is an evergreen strategy. Some of the most successful investors across the globe practice it and so do we. Value Investing simply is buying a share at a price substantially lower than it’s intrinsic fair value. We believe that growth and Value Investing are not mutually exclusive. Even companies that are growing fast can be valued and if available below their intrinsic value, we are interested in them. The most common misconception about value investing is that it involves buying companies with a low P/E ratio. Nothing could be away from the truth. P/E for us is an output of the valuation exercise not an input and therefore we are not much bothered by it. The intrinsic value of any company depends on its ability to generate free cash flows in the future which in turn is a function of long-term expectation of growth, improvement in capital efficiency (RoCE) and cost of capital. If you can consistently keep finding companies trading below their intrinsic value and invest in these bargains then you can potentially make a decent return consistently.
Value investing is for the long-term. The inherent margin of safety approach is what makes your investment relatively less subject to downside risks. This basic approach of value investing makes it evergreen. So yes, 2021 will be the year of value investing but so are all the other years. ”
In conclusion, 2021 isn’t just the year for Value Investing. Value Investing has been an evergreen strategy in the past and well possibly for years to come. Managers have tried different combinations of strategies with hybrid models from time to time. But one thing is for sure, Value Investing isn’t dead.
It’s the Champion of Investing Strategies.
(This is a partnered post)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
