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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Terry Maynard who wrote (10271)	4/2/2000 3:07:00 AM
From: James Clarke	Read Replies (2) \| Respond to of 78566

Many value managers are being criticized for ignoring momentum, or even, God forbid "shorting momentum". (That phrase means nothing to a fundamental analyst like me, but I hear it all the time from insitutional portfolio managers.) The value managers that have done alright in this mania have been the ones who held onto tech stocks they bought at cheap levels years ago, and they held on as they got fairly valued, then expensive, then in many cases manic. But who are the ones who have done well over the long haul? Warren Buffett clearly scoffs at the idea of momentum. Julian Robertson obviously does as well and it killed him - but don't forget this guy wound up with a 25% return for his partners since 1980 despite a 50% loss in the last 18 months. I have never heard Mario Gabelli even mention the concept of momentum. Bill Miller would be the exception. What lesson should we learn from that? To emulate the value-momentum strategy that has worked better than value alone for the last couple years? The answer is a resounding yes - IF YOU THINK THAT THE FUTURE WILL BE LIKE THE LAST FIVE YEARS. I do not. (And if you want to incorporate ideas of momentum into a value strategy, why do value at all - why not just do momentum - after all, that has worked the best.) The strategy of buying stocks when they are objectively cheap and selling them when they are a little north of fairly valued just makes too much sense for me to abandon it now for a strategy based on metrics that I don't think have any relationship to investing as I define the term. I've been wrong for the last two years. We'll see about the next twenty. The last three weeks, knock on wood, erased an entire quarter of big losses for me, and then some. That would not have happened if I had given up on my discipline when it seemed to make so much sense to do so - temporarily of course, as so many value investors apparently did. There is no other way to explain the crash in value stocks over the last six months and the simultaneous rise in techs. Anecdotally, I saw many value investors - even professional money managers (I might say especially professional money managers) give up and buy tech stocks at exactly the wrong moment. For about a week they were telling me about 50% gains. Haven't heard much from them since then.