What does Warren Buffett Know??

As the market grinds higher, despite overvaluation concerns, it’s been increasingly tough to maintain a conservative or even a neutral point of view.  And even if you just have a value-oriented style, like me, you’ve lagged the overall indices, and especially fallen behind growth strategies as the WSJ article documents:

Value investing is mired in one of its worst stretches on record, prompting concerns that the investment style favored by generations of fund managers is losing its effectiveness.

Value stocks, those that are cheaper than many peers relative to earnings or reported net worth and are typically purchased by fund managers anticipating long-term appreciation, have significantly lagged behind their growth stock counterparts this year, compounding a gap that has persisted since the end of the financial crisis.

Instead, investors have gravitated toward companies with fast earnings or price growth, such as Amazon.com Inc., Netflix Inc. and Tesla Inc., and the market’s price-earnings ratio has continued to rise—a trend that many value investors contend cannot continue forever.

And today we learn that the world’s leading value investor, Warren Buffett, is now holding over $100 billion in cash at Berkshire Hathaway.

Buffett is famous for his patience and unwillingness to buy at the wrong (i.e. high) prices. While he no longer looks for dirt cheap investments by favoring great businesses at reasonable prices, the fact that he apparently sees none today should be somewhat of a signal.

In any case the market moves in cycles and what’s unpopular today (Value) will undoubtedly have its return to favor one day.  Conversely chasing the currently hot T-FAANG (TeslaFacebook, Amazon, Apple, Netflix, Google) stocks today is probably not the best strategy if/when mean reversion sets in.


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