WSJ in a recent article noted the outperformance of "boring stocks"based on theri definition of boring industriesc the data but
I am not surprised . As noted in the article this is really subset of value stocks. And it is well know that over long term what are considered value stocks (low measures such as price/earnings or price/book outperform
The article notes:
We find that our predictions are supported by the data: Boring industries are better investments than exciting industries,”
The converse of this finding has been observed for long data
periods. High valuation small cap stocks value stocks (low measures such as
price/earnings or price/book outperform. It has long been known that categories of stocks that get bid up
to high valuations are poor performers long term. These are referred to by
observers as "lottery tickets",glamour stocks or shooting stars and
usually have high valuations. Within this group the absolute worst performing
stocks are those that were recent ipos which can be considered the ultimate
lottery ticket since they often have no earnings and certainly no long term
track record of financial performance. In fact many of these stocks can be said
to have a price/earnings ratio of infinity since they have no earnings.
This a well known outdcme of the many findings of
behavioral finance. Investors are attracted to stocks in the news and those
that have the potential for quick large gains. There are certainly ipos and
small cap growth stocks that generate eye popping returns in the short term
although they generally return to reality, but the likelihood of picking one,
and particularly picking a successful portfolio of them is low on a statistical
basis. But nobody talks about their losers in this category at the cocktail
party or barbeque and there are seldom articles about these in the media. So
the prospects of “finding another google” seem more likely than they are.
The
key is to take advantage of behavioral flaws in the market, .., many investors
gravitate toward exciting industries in search of standout returns. That
creates opportunities for investors to find undervalued stocks in sectors with
less sizzle, Mr. Rudderow says nt.
Not
surprisingly the a above quotation comes from "the investment officer of Mount Lucas
Management, a firm in Newtown, Pa., that has $1.7 billion in assets under
management and offers value funds including the large-cap Mount
Lucas U.S. Focused Equityfund.
“It’s
hard to be smarter than other people in something like Tesla,” where the
potential for big gains is obvious, Mr. Rudderow says, “and it’s easier to be
smarter than other people in boring stocks.”
I am particularly
skeptical about the long term success of active managers vs. their benchmark in
this case active value managers vs value indices or passive investments (not
called “smar beta” active manager.
But I would say all
the great long term investors have had a value oriented approach particularly
when they are likely to have investors willing to view their investments as
long term. The classic of this group is Warren Buffett. But many parts of his
strategy such as buying non public companies and more recently buying spinoffs
of public companies and taking them private indicates he may feel that the days
of easy pickings in stocks are gone. Interestingly enough he has stated
publicly that whatever money of his left to his wife will be passively invested
in the S+P 500 not even it seems in Berkshire Hathaway stock managed by his
hand picked successors.
Here is a chart
comparing value vs growth indices and the S+P 500 (which is tilted towards
large growth stocks).
 |
Small cap value (yellow) Large cap value (green) S+P 500 (blue)
Large cap growth (blue), small cap growth (red) |
