Just because value investing is hard doesn’t mean you shouldn’t do it



Juan Torres Rodriguez
Fund Manager, Equity Value

Value investing tends not to be a comfortable strategy to pursue but it can ultimately prove more so than many of the more fashionable ventures other investors clearly believe represent an easier option

Value investing can be a long, hard and bumpy road to travel. Lonely too. Here on The Value Perspective, we clearly feel the destination makes the effort involved – focusing on the long term, doing your own research, stomaching the volatility and swimming against the tide of popular opinion – hugely worthwhile. Equally, we recognise – even if we do not fully understand – that others may prefer to follow different investment routes.

That said, we can find ourselves at a loss when we read about some of the ventures investors appear happy to back instead as they hunt for returns. To illustrate our point, let’s take at random two recent and unrelated stories – the first of which comes from the Wall Street Journal and concerns the ripple effect across the Chinese peer-to-peer (P2P) lending market when a phone-maker failed to repay on time the money it owed.

Peer-to-peer lending

The article, A default in China spreads anxiety among investors, includes the reactions of one man, who was only just beginning to face up to the reality of losing all his money after making a loan whose risks he had not really understood. As it happens, an insurance company – citing a desire to fulfil its “social responsibility – handily stepped up to guarantee and then refund the money the phone-maker owed.

The article suggested this may have been motivated by a desire to contain political fall-out from the episode but presumably P2P lenders will not always be so fortunate. Yet still they continue to make risky, unregulated loans – often with just a few swipes on their mobile phones – without addressing such basic considerations as collateral, the creditworthiness of borrowers or the cold hard fact they could end up losing their cash.

Poor management

The second, more unusual story – you would hope – comes from Business Insider. Inside the crash of Fling, tells the story of how the 20-something founder and CEO of a social media app, which never brought in any revenue, managed to go through some $21m (£17m) that had been raised by his wealthy father and a syndicate of investors largely assembled by an “ex-Goldman Sachs banker turned hedge fund manager”.

Veteran French value investor Jean-Marie Eveillard once said “To be a value investor, you have to be willing – and able – to suffer pain” and, indeed, many investors are – and do. In seeking to avoid this difficult road, however, plenty more investors choose to back tech start-ups and P2P and whatever other fashionable ventures happen to be in the news. Of course past performance is not indicator of future results, but ultimately they end up suffering a whole lot more than if they had been willing to follow a strategy more than a century’s worth of data shows has outperformed on average and over that time.


Juan Torres Rodriguez
Fund Manager, Equity Value


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