Model Price Question #2
November 9, 2015
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Poor Irwin Michael the “deep value” guy looks to me like he is slowly throwing in the towel. During the 3rd quarter his funds purchased shares of Home Depot (HD-us). I use to watch what he was doing out of respect now I watch to see how bad the train wreck will become.
From ModelPrice Guy
Value and ‘Deep Value’ stocks as an asset class has been getting killed over the last two or so years. Why? We are living in a world of deflation. As stock prices drop this doesn’t necessarily mean they are cheap. The opposite may also be true…. they may actually carry MORE RISK! In a deflation world, what is prized by the market is growth. And with growth the valuation on the company shares go skyward. Companies that are not growing…or worse contracting continue to go down until they go into the ‘Blue’ or below EBV-3. (Materials and Gold Companies!)
Until the deflationary economic environment changes this investment style will continue to underperform in my estimation. We recognized this many years ago and modified our investment style to recognize this new economic environment. Others have not…and they, along with their investors or clients, have paid the price.
What does this mean longer term…we are all chasing the same stocks at the end of the day and valuations on the limited true growth companies are going ever higher.
Until they don’t…. gulp!