Value Investing is Valuable Again
The world of passive investing is now dead. It’s time again for the stock picker and the person who has the process. Value investing has been struggling to survive but, when the economy was fueled with cheap and easy money, you didn’t really have to hunt for value. All you needed to do is ride the wave of liquidity. Stock picking was like throwing darts on a board full of names because no matter what you bought, chances are it was going up. But, that’s no longer the case.
We’re probably done with the 13-year boom of cheap credit and easy money. The bear market of 2022 has taught many new investors a valuable lesson. Stocks don’t always go up.
And this is the time when people with skill will need to make a come back. This is the time when it becomes important again to understand what drives a company and where numbers could go.
The asset managers and analysts who’ve come of age after the Great Financial Crisis have not been exposed to the same degree of skill and learning. I’ve seen this in corporate banking as well. There’s less emphasis on learning and more emphasis on numbers. And guess what? Making numbers in a bull cycle is wasn’t all that challenging.
Add to that the fact that every time there was even a hint of trouble, Central Banks came back to the rescue. Cutting rates and pumping in liquidity. The last two years were epic and quite possible gave rise to the biggest bubble in history.
It gave rise to the retail investor cohort. Not that these people were not there but, now they were armed with unprecedented liquidity and trading apps. Because obviously everything is more fun on an app. Buying options and stocks became like playing a video game — we call it the gamification of investing.
Twenty years ago, I never even dreamed that the stock market casino could reach these heights. But, here we are and the House is no longer on your side.
The last two years have frustrated me to no end. I stopped writing about stocks altogether and started focusing more on the macro environment and industry discussions, even that wasn’t received to well at first. Because why does any of this…