Value Investors Must Remain Confident When Your Strategy Does Not Appear to Be Working

By The Acquirer’s Multiple via

One of the value investors we like to follow closely here at The Acquirer’s Multiple is Francis Chou, founder of Chou Associates Fund. Chou recently released his 2018 semi-annual report in which he urged value investors to stick with their value investing principles in the current market environment saying:

“The important thing is that we continue to be confident in our value investing principles and the process we use to buy and sell stocks. We are trying to buy securities at 60 cents on a dollar. Another way to look at it is that when you buy stock at 10 times earnings versus the market at 25 times earnings, other things being equal, you are getting a 10% annualized yield versus the market giving you a 4% annualized yield. This reasoning is logical and should outperform the market in the long run. However, there will be periods – like we are going through now – where it does not appear to be working.”

Here’s an excerpt from that report:

Short-Term Performance Impacts Long-Term Returns

We have been out of sync with the market for about four years – the longest stretch so far. Generally, it has not bothered us because we expected to underperform the market 30% – 40% of the time, based on our history of managing money for over 35 years.

A lot of investors are not aware that short-term results can have a huge bearing on the five-and 10-year annualized compounded returns. For example, let’s take Fund A and Fund B. Fund A has consistently returned 7% per year for 10 years and therefore its compound rate of return over the 10-year period is 7%.

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