The Reflation Rotation from Momentum to Valueo

I have noticed an apparent seachange in our leading SaaS stars, as many of you have, and noted that it appears to be a rotation of sorts. This article from Marketwatch seems to confirm;

https://www.marketwatch.com/story/its-reflation-thats-turnin…

Marketwatch notes; “There’s some value in value, again”

There is more to the article, but here are a couple of excerpts.

For much of this year, investors were trading as though the end of the business cycle was close at hand. Throughout this year, so-called momentum stocks were on fire. Now, investors are dumping those stocks in favor of value stocks. Ned Davis Research analysts suggest that’s due in part to markets “reflating.”

Many investors are likely familiar with the “value” proposition made famous by Warren Buffet and other investors: buy low, sell high. Momentum is a little less straightforward, but a very crude shorthand might be “buy high, sell higher.”

With that in mind, the reason investors have embraced momentum this year might be: if economic growth is already at full throttle and likely to downshift from here, it’s safer to stick with the big winners. But if something – say central bank easing – buys the expansion some extra innings, there might be more value in the value trade.

I recall the recession rhetoric picked up in July and peaked in August, with the inversion panic grabbing headlines. Now there appears to be some second thoughts about recession and even rising expectations that the US/China trade war maybe easing, so investors are apparently shopping for beaten up bargains.

So basically, the fundamentals haven’t changed, just the investor psyche has shifted like the wind.

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Many investors are likely familiar with the “value” proposition made famous by Warren Buffet and other investors: buy low, sell high. Momentum is a little less straightforward, but a very crude shorthand might be “buy high, sell higher.”

That is often attributed to Warren Buffet, but what he actually said is:
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

If you’re interested in what else he has said, here’s a good article:

25 Best Warren Buffett Quotes
https://www.fool.com/investing/general/2014/09/28/25-best-wa…

Some of my favorites:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

“In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Enjoy,
Brian

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Hi Brian,

“In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”

Didn’t this saying come from Ben Graham? As I recall, in his book “The Intelligent Investor”, which was first published in 1949, Graham wrote:
“In the short run, the market is a voting machine but in the long run it is a weighing machine”.

I don’t know where Buffett’s variation came from exactly, but I believe it’s roots originated with Graham.

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I don’t know where Buffett’s variation came from exactly, but I believe it’s roots originated with Graham.

Warren Buffett was Ben Graham’s student…

Warren Buffett was one of Graham’s students at Columbia University (and the only one to have ever received an A in his class). Many other value investing legends, like Bill Ruane, Irving Kahn, and Walter Schloss, were also disciples of Benjamin Graham.

https://www.businessinsider.com/ben-grahams-value-investing-…

Denny Schlesinger

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Ah, I see. Makes sense.