Why Value Investors Keep Missing the Market’s Biggest Winners

During their recent episode, Taylor, Carlisle, and Ross Glotzbach discussed Why Value Investors Keep Missing the Market’s Biggest Winners. Here’s an excerpt from the episode:

[Ross] Yeah. So, I mentioned a tough 12 months at the start. It’s really kind of been a tough 12 years for the concept of reversion to the mean.

We do still believe in that concept. I believe that we have learned though the virtue of holding on to something that you understand, that you trust the people and that is on offence enough to keep growing its value per share. That can be a good thing to hold sometimes at 80 to 90 cents.

It doesn’t have to be a big, huge weight necessarily, but don’t get too distracted because we’re value hounds. You know, buy that new 60, 50 cent dollar that might not be on offence as much.

[Jake] Yeah. And you probably don’t know it as well to actually like pin down that number of- And that is true.

[Ross] There is a big, big difference between having lived with something for a long time and not. And it’s just one of those things. It’s hard to describe, but you know it once you’ve done it for a while.

And that’s also when you can make a whole lot of money too, when you know something well and it just drops for silly reasons and then you can take that weighting back up. That’s good. You might have less confidence and less willingness ability to do that if it’s a newer holding.

But- The grass is always cheaper. Is that what the saying is? Yeah.

So, you know, you go back 10, 15 years ago, you had a lot of great- The difference in multiples between great and good to average wasn’t- That was a mispricing. You know, we- I remember I was our Google analyst in 2015 and you backed out the stuff that was money losing, wasn’t disclosed very well. We were paying 12 times or so after tax-free cashflow for that core business.

And that was very attractive. That’s value stock however you slice it. You go forward though to today, and this has actually been changing a little bit, some we’ve seen this year.

Some of these, you know, permanent compounder type companies, you know, have been becoming a little less permanent. And that’s interesting. And that’s, I would say, encouraging for our style of investment.

You know, interest rates have also been a factor here where in low interest rates times, it’s just all about growth and you can really, you know, get some of that. You know, what was a 15 times earning stock 10, 15 years ago had gone to a 30 times earning stock. It was just, it was kind of crazy, you know.