Spotting diamonds in the mire
ROTTEN week for value investors, what? Given all the hating, here (see page 4) and elsewhere , there must be a few grins in the trading rooms of Investec, RE:CM and Allan Gray, the fund managers who felt the worst heat of the hammering given to those who have dared to underperform in the short term.
The thumbs-down does not come only from South African tape watchers, who are unwilling to see any light beyond the fog of bad vibes surrounding companies connected to gold, platinum and Japan.
A rare story on marketwatch.com dared to defy the deified word of Warren Buffett, surely the world’s most sainted value investor. “More myth than legend” was the title of retirement-planning adviser Paul Merriman’s story, which pounded into dust the perceived wisdom that the Sage of Omaha’s stock picks are as fail-safe as his reputation deems them to be.
Buffett’s insurer, Berkshire Hathaway, acts as a super-investment holding company. The guru buys up a wad of unlovely “undervalued” dreck then makes damn sure there’s a huge racket made in the media about that fact. Bingo. The master hath spake: the stock price goes up.
Merriman this week committed the heresy of pointing out that Buffett’s tactics have not worked very well since 2008. Rather buy a passively managed low-cost index-tracker, said the author.
This is scandalous talk. If there is one investment “philosophy” that is bowed down to before all others, it is the value style: buy the scorned curs of the market in the sure knowledge the rest of the herd will twig, in time, to their promise and pile in to lift prices to their “true” value.
What kind of investor buys Harmony Gold, Impala Platinum or anything in Japan? A far-sighted one, maybe
It is a brilliant strategy because it implies that the value investor is so much cleverer, or has done so much more homework, than the average schmendrik.
Buffett and his ilk must be right— so buy the hell out of what they recommend and damn the kamikazes . . .
But that was then. Now, in these befuddled times of abundant liquidity and hunger for yield (whatever the risk), many market players have turned their backs.
In their desperation to continue making real the illusion that returns can be conjured out of blind hope — that sheer momentum will keep driving up the prices of proven dividend-paying performers — punters are paying astronomical sums for ever-reducing earnings.
The likes of Buffett (and his acolytes at Investec, RE:CM and Allan Gray) contend otherwise — yet they have been pilloried for it. Indeed, what kind of investor would buy Harmony Gold, Impala Platinum or anything in supposedly moribund Japan?
A far-sighted one, perhaps. One who sees diamonds in the mire. Bad stuff happens. Then it stops happening.
Kyle Bass, a hedge fund manager who made his name by being on the right side of the 2008 meltdown, reported back in June on a visit to Japan. He quoted a phrase used by a patient people who know more of civilised history, its apogees and nadirs, than most:
“Shikata ga nai.” It cannot be helped.