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It's no surprise to anyone keeping up with the news that we live in an investing culture that values everything but investing.
Nowadays, everyone sprints for the Next Big Idea that can hand them quick and easy gains. This was the same mentality that pushed a cryptocurrency with no real-world value above $19,000 last year, and shares of a massive e-commerce company up to 572 times earnings.
Quite frankly, I'm sick and tired of this "growth beats value" and "value investing is dead" B.S. that's been dominating financial TV lately.
At this point, I just want to punch the next smug-looking, slick-haired 25-year-old that recommends buying growth to me or the world at large.
They must have gone to the same school, because they all espouse the exact same inaccurate gibberish. All of these alleged investment geniuses cite numbers showing how badly the value index has underperformed the growth index over the past few years.
Just for kicks, let's go ahead and dissect that gibberish – and examine just how inaccurate it really is…
The Growth Guys Are Lying to Your Face
The bellwether for value investing in the United States is the Russell 1000 Value Index, which tracks large- and mid-cap companies that "exhibit value characteristics," per the official website.
As for what exactly those value characteristics are, well… that's where things start to get moronic.
Per the official website, they're metrics like price-to-book ratio, which is something I watch like a hawk in companies that cross my radar.
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The Value Index tracks companies in the Russell 1000 with lower price-to-book (P/B) ratios and price-to-earnings (P/E) ratios relative to the entire index's average. As of this writing, the Index's average P/B ratio is a little over 2 and the P/E ratio is at 20.
Riddle me this: what kind of slack-jawed anti-genius thinks a P/B ratio over 2 and P/E ratio of 20 are "value characteristics"?
These stocks may be cheaper than the top half of the index, but they are not cheap by any means. For context, the top holdings include Johnson & Johnson (NYSE: JNJ) and AT&T Inc. (NYSE: T). These are mostly blue chips, making them far from the epitome of value investing at today's market levels.
Let's dive a little deeper and check out the Russell 200 Index. Again, its average P/B is about 1.53 and average P/E is 16.06.
Those are slightly better than the large-cap value index, but still not cheap in the classic sense of the word. You know, the sense that can net us triple- and quadruple-digit returns as the value of the company's assets rises to meet their real value.
None of this is real value investing at all.
A company that's cheaper compared to expensive companies is not a buy. This is called Relative Value Investing, or, as I like to call it, running a con on the public to collect millions in fees to pay for ridiculously overpriced suits.
Are there highly educated, finance-degree-carrying idiots out there who really think Ben Graham, Walter Schloss, and Seth Klarman made all their money buying popular stocks at double-digit P/E ratios or high book values?
I can assure you they did not.
True Value Investing is not done in the middle of the pack. It does not take place in the middle of the bell curve. Real, honest-to-God value types are out on the edges of the tail, scouring for extraordinary opportunities with a high margin of safety.
While that may sound easy, it takes years, even decades, to cultivate an understanding of what exactly constitutes a valuable "buy" opportunity.
I've been on that journey for 30 years now, and while I'm nowhere near the smartest guy in the world, my track record of nonstop triple-digit winners since 2013 shows I may know something about what I'm talking about.
And the bulk of my method, believe it or not, boils down to just two simple steps.
Here's how I thumb my nose at those growth morons…
How to Find the Most Valuable Companies on the Market
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