Value investing was a lot easier in 2012 and 2013 when our value approach beat the market by a substantial margin and we had a reasonable edge on other active value players. But now that we have lived through 2014 and 2015, most value approaches (simple, complex, quant, human, small, large, etc.) have some degree of “suckiness.” If you don’t believe us, check our post on “The Value Pain Train.” We are continually trying to educate investors on the need for discipline and patience when implementing highly active value exposures that have a fighting chance of beating the gloriously cheap and tax-efficient Vanguard S&P 500 fund. As we often say, active investing is simple, but not easy. One needs to be wired differently and their capital needs to have the long duration to match the long duration of active value strategies. Matching short duration capital with long duration strategies doesn’t work out well. (Read the literature on bank runs to find out more). And while we spend an inordinate amount of time sharing research and our ideas to get investors to internalize discipline and patience, sometimes a great anecdote can go a long way. Hearing about the adversity others have suffered while trying to maintain discipline to a value strategy can sometimes provide valuable perspective for those who are struggling today. To facilitate this effort I went looking for interesting case studies and I ran across an outstanding presentation by Cliff Asness at the 2014 Grant’s Interest Rate Observer Conference (an event I used to attend when I wanted to feel bad about the future and find bearish investment calls that never make money).
Value Investing Requires Patience…a LOT of Patience–Ask Cliff Asness
About the Author: Wesley Gray, PhD
After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm dedicated to an impact mission of empowering investors through education. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes has published multiple academic papers and four books, including Embedded (Naval Institute Press, 2009), Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). Dr. Gray currently resides in the suburbs of Philadelphia with his wife and three children. He recently finished the Leadville 100 ultramarathon race and promises to make better life decisions in the future.