Is value investing dead? Should you then flirt with the flavour of season?

By ArunaGiri N

In the 1985 Hollywood flick Back to the Future, the protagonist needed the time machine to travel back in time. Value investors rarely use such sophisticated machines to back-test investment strategies. They simply travel back in time in memory.

The year was 2013. Going back there was like travelling back to the future of 2020. It was like setting the clock back to future.


Scanning the headlines in financial dailies back then felt exactly like what we have seen 2019 and 2020. What is fashionable now was fashionable back then too. Take for instance, the headlines that screamed – The Death of Value Investing; Is Bubble Building in Quality? Flight to Safe Haven Stocks etc. Today they reverberate the same way in the headlines of financial and business dailies. But what is interesting is, in the interim between 2014 and 2017, this fashionable theme quietly lost its fancy when the smallcap story rose from the ashes like a phoenix to dominate the narrative for three successive years.

How does one take the current headlines flashing in the financial dailies? As one headline claimed, a well-known veteran value investor has succumbed to his self-doubt and become a neo-convert to fall for his new-found love for quality. Of course, in social media, there is a huge chatter that yells ills about value investing. That begs the question: whether value investing is dead for a second time or forever?

Fundamentally, value investing doesn’t stand in isolation. If it is only value for value sake, it deserves to be deserted. But if growth is embedded in value, then, that value investing is very much valuable and it will continue to vault, though with hiccups here and there.

Similarly, ‘quality’ is not an exclusive possession of some coveted coffee-can clubs or neo-converts or a privilege of the much fancied large-caps. It is equally relevant in smallcaps. Nothing can beat value that comes from trying to buy ‘quality-cum-growth’ at a discount, be it largecap or smallcap.

Of course, in smallcaps, such spicy opportunities spurt more often, because the space is under-researched and under-covered (also more volatile).

To borrow a phrase from one of the seasoned stock-pickers, value investors are like a group of beasts being hunted to extinction. Why?

It is not difficult to fathom the reasons. Value as a strategy has been under-performing for an extended period of time since early 2018, because of flight to safety and polarised market dynamics.

Even the last man standing out is being tested for his tenacity. Should the last few standing be worried? No. If one sets the clock back and look at the past two decades, one would find that neither this narrative (that value investing is dead) is new nor the crowded trade in quality is new.

There has been only one thing that has been constant across cycles. That is, every strategy has a day in the sun and only thing that has always worked all the time is “reversion to mean”. It is a question of time before the market takes fancy to value, though it is difficult to predict the turn.

Seasoned investors understand that every strategy has its time of outperformance and of underperformance. The key is to stick to a strategy and not to flirt with the flavour of seasons. Stay the course to smell the roses, however hard one is being hounded.

Happy Value Investing!!!

ArunaGiri N is Founder & CEO of TrustLine Holdings. Views are his own