Is Value Investing Broken?

During their recent episode, Taylor, Carlisle, and Meb Faber discussed Is Value Investing Broken? Here’s an excerpt from the episode:

[Meb] Well, you know, it can’t be fundamentally broken because eventually then like nothing works. It somebody on the local strand was trying to charge, these kids were trying to charge like six bucks for lemonade. I’m like, what are you guys doing?

Like nobody’s paying six bucks for your lemonade. Come on. Yeah.

But I think that’s, I think that’s just cycles. The hard part for me, always on the valuation side, you know, there’s no ceiling to these manias and fun things. And I mean, look at SpaceX.

If you told me at the end of the year that SpaceX was gonna be the world’s largest company, like, I don’t think I’d be surprised. I mean, it has everything, a charismatic CEO talking about putting data centres in space, unlimited TAM, you guys.

[Jake] Infinite TAM.

[Meb] Infinite TAM. So it wouldn’t surprise me, but eventually it all comes home to cash flows, one of these days. And if you look at the broad international and emerging, we sent out a chart to the idea farm, maybe this week or last week, or might’ve been on Twitter.

And it showed, you know, how value generally has been doing. And there definitely was a kink where value ex-US, particularly in the last couple of years, has done really well. And, you know, value in the US, we’re getting some this year, particularly with the small caps, but, you know, the turn hasn’t really happened yet.

And part of that, it depends how you analyse it, if it’s long and short, is that the upper end has continued to kind of cruise along. So, but if you’re talking about the wealth inequality, going back to that, nothing solves that better than a big fat bear market, guys. There was a book that I thought was really thoughtful and I’m blanking on the name of it.

I’ll see if I can find it real quick, but it’s interesting because the framing of it, to me, it was always people were like, ah, you know, there’s wealth inequality. And then you look at the chart and a lot of that is simply because the middle class a lot has ascended into the upper class. And so in your head, you’re like, oh, great.

You know, that’s a good thing. You shouldn’t be complaining about that. But this book makes an argument that throughout history, it’s actually a supply demand situation.

When there’s too many super rich people, it’s like an optics issue. It’s like there’s too much supply. There’s too many billionaires.

And so you get, particularly in the social media age, you know, you did this optical window like, hey, this guy’s got a jet. I don’t have a jet. I’m miserable.

Which to me is one of the bigger questions you’re talking about the factors that’s strange to me has been the sentiment and the cycle. You know, if you look at the investor sentiment on AAII and stuff like it’s not euphoric. In fact, it’s downright sullen.