Just because value investing is hard doesn’t mean you shouldn’t do it
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.
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.
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
I joined Schroders in January 2017 as a member of the Global Value Investment team. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet I was a member of the Customs Solution Group at HOLT Credit Suisse.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.