Defects of Value Investing
We all know “Value Investing” is well
advocate by investment guru Warren Buffett. But to be specific, it should be
called “Long Term Value Investing”. So, for people into short terms or high risk
but high return invests, these defects maybe your opposite indicator.
No sufficient "information
advantage" and "control"
Buffet known for used his “cigar butt’
approach to investing to make his first million. Buffett explained, “If you buy
a stock at a sufficiently low price, there will usually be some hiccup in the
fortunes of the business that gives you a chance to unload at a decent profit,
even though the long-term performance of the business may be terrible.” The
“cigar butt” approach may not exactly fit in the category of Long terms, but
for Value Investing. Why this approach cannot be applied nowadays?
1.
Modern information gap is so
small that it is difficult to find big enough arbitrage opportunities.
2.
You must buy enough stocks to
influence the company to make it unload and cash to be profit of yours.
Ignores the
important limitation of the "monetary factor"
Once the value investment practitioners
encounter strong changes in the currency phenomenon, they are easily at a loss
and do not know how to deal with it. This is most obvious in the decade after
2008, and even Buffett ’s amazing long-term performance since 1965 has been
flattening in the past decade.
Over pursuit of
security
We all know security is good, but over is
always a bad thing. Reason why Value Investing is profitable is because you
seek for stable dividend or only buy in when price lower than its value. These
two facts are contradicted to each other, profitable companies seldom fell to a
price suitable for buying. In result, there are times you find yourself with
full of cash but not target, or the opposite around.
To be fair, these 3 should not be label as
“Defect”. But would be trench for normal investors. Because the capital or time
required.
