Tobias Carlisle, an expert in value investing, discusses the struggles and opportunities of value investing for long-term investors. They cover topics like inflation, AI, Berkshire Hathaway post-Buffett, and market trends, emphasizing the importance of undervalued stocks and strong management amidst uncertainties.
Market shifts towards passive investing impact stock valuation emphasis on fundamentals.
Value investing focuses on long-term returns, cash returns, and undervalued stocks with strong yield.
Caution advised on macroeconomic trend predictions; focus on sound businesses for long-term value.
Deep dives
Discussion on the Changing Investment Landscape and Passive Flows
The discussion delves into the changing investment landscape where passive flows have possibly overwhelmed active investment, affecting how markets value stocks. Concerns arise about the market's reduced emphasis on fundamentals and the impact on stock pricing. The conversation revolves around strategies focusing on companies returning cash to shareholders as opposed to relying on mean reversion or multiple expansion.
Value Investing Strategy and Long-Term Returns
The conversation emphasizes the value investor's focus on long-term returns rather than the short-term stock price performance. The approach involves calculating returns based on dividend yield, buybacks, reinvestment of earnings, and the marginal return on invested capital. Emphasis is placed on finding undervalued stocks with solid yield and management's commitment to capital returns.
Discussion on Inflation, Investment Strategy, and Market Predictions
Participants express caution about predicting market behavior based on macroeconomic factors like inflation. The conversation highlights the unpredictability of macro trends and cautions against market timing strategies. Emphasis is placed on investing in sound businesses with a focus on long-term value and strategic management decisions to navigate uncertain market conditions.
Market Trends and Performance
The podcast discussed the contrast between value and growth investments in the market, highlighting that value investments did better than growth but were still down. The conversation also touched on the current market dynamics, pointing out the narrow leadership with large caps outperforming small cap value, sparking discussions on potential catalysts for small cap and mid cap catch-up, potentially driven by higher growth or rate cuts.
Concerns and Optimism in Investment Strategies
The episode delved into the concerns around backtesting and data adjustments in investment strategies, referencing a study on vintage value factor returns that revealed discrepancies due to data adjustments. The discussion expressed skepticism towards historical results, emphasizing the need for careful analysis and understanding of backtests. Additionally, the podcast explored the use of AI and machine learning in portfolio construction, highlighting the challenges of stable relationships in investing and the importance of simplicity and skepticism in testing investment strategies.
David Einhorn recently said that he thinks fundamental investing is broken. If he is right, there would certainly be significant long-term implications for value investing. We explored Einhorn's case in several of our episodes and so we thought it was time we explored the other side of the argument and looked at the long-term case for value. And we couldn't think of anyone better to do that with than our good friend Tobias Carlisle. In this episode, we talk to Toby about the struggles of value and why he thinks they present a significant opportunity to long-term investors. We also discuss inflation, AI, what Berkshire will look like after Buffett and a lot more.
SEE LATEST EPISODES
https://excessreturnspod.com
FIND OUT MORE ABOUT VALIDEA
https://www.validea.com
FIND OUT MORE ABOUT VALIDEA CAPITAL
https://www.valideacapital.com
FOLLOW JACK
Twitter: https://twitter.com/practicalquant
LinkedIn: https://www.linkedin.com/in/jack-forehand-8015094
