Joel Greenblatt, the author of The Little Book That Beats The Markets, also runs Gotham Funds. Obviously Gotham Funds utilizes many of the approaches he discusses in his books.
I recently came across a PDF of his views of the current market. As I have discussed here several times, value stocks have been out of vogue recently and that has really hurt value investing methods like MFI.
Greenblatt puts some interesting figures around that observation (NEW: Market Observations – September 2018 ). Here are key points:
- Market is very expensive overall
- Markets have been very speculative of late (pricing in future profits).
- Morgan Stanley Momentum Index has outperformed MS Value Index YTD by 31 points!
- Russell Pure Growth has outperformed Russell Pure Value by 26 points YTD.
- Russell Growth has beaten Russell Value by 13 points.
- Historically, these differences are abnormal (with 2017 also being one of the years with huge difference).
- Companies with negative cash flow are actually doing the best.
But he views all this as a significant opportunity (granted, he is a value investor - and unless he is throwing in the towel... he has to see silver lining). So he thinks it will snap back in a big way and value will way outperform growth.
What Has Happened Since
Greenblatt published this on September 18th and it was based on end of August data. Guess what? I think snapback may already be happening as we see markets churning of late.
- My MFI Formula approach since August 31st is up 0.9% and the Russell 3000 is down 5.2%.
- My MFI Select since August 31st is down 3.4% versus Russell 3000 down 5.2%.
- My MFI Index is down 3.4% in that stretch versus R3K down 5.2%.
- My MFI Tracking portfolio I started end of August is down 5% (so a push).
- GARIX (a Gotham mutual fund) is down just 1.3%.
- And while I showed Russell 3000 (down 5.2%) in all these stats, Russell Growth is down 6.6%.
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