Jawad Mian Profile picture
13 Mar, 16 tweets, 3 min read
1) There are some truths that are so obvious that we never question them. The virtues of value investing is one of them.

Time to renovate demonstrably false old truths. 🤓stray-reflections.com/article/166
2) Value investing has held a structural advantage when considered over multiple market cycles.

From 1927 through 2019, value stocks outperformed growth stocks 93 percent of the time over rolling 15-year time periods.
3) Value's worst-ever performance when compared to growth stocks last decade is vexing.

Should investors adjust to the changing landscape or side with a truism that has stood the test of time?
4) The reason for value’s persistent outperformance is widely misunderstood.

Rather than cheap valuations, the biggest driver of value returns was sector composition.
5) Value outperformed growth for most decades since the 1930’s because of overweighting in energy, materials, and finance, the dominant industries of the past century.
6) Oil boomed, automobiles and planes took off, and the materials sector answered tireless demand for road systems, electricity grids, factory upgrades and the non-stop construction of warehouses, offices, and homes.
7) From 1930 through 1980, energy and materials represented as much as 20 percent of the stock market—each.

Oil tycoon J. Paul Getty became the world’s wealthiest man in the 1960s.
8) The financialization of the US economy from 1980 onwards boosted the financial sector, which had the largest weighting in the stock market by 2007.

Warren Buffett was now the world’s richest man, earning a fortune investing in America’s biggest banks and insurance companies.
9) Over the past decade, these important sectors have faded from their former glory.

Fallout from the global financial crisis and a commodity bear market put an end to value’s outperformance.
10) At the same time, technological advancements underpinned the rise of wholly new sectors such as information technology and healthcare, reflecting a new economic reality based on intangibles: IP, data and software.
11) According to @mjmauboussinsin, earnings and book value no longer mean what they used to.

Tangible assets, such as factories, were the foundation of business value and recorded as assets on the balance sheet when Benjamin Graham pioneered value investing in the 1930s.
12) Yet intangible spending, such as research and development, has been driving innovation in recent decades and is treated as an expense on the income statement.

Earnings and book value are thus losing their ability to represent economic value.
13) The point is it doesn’t matter if value stocks are historically cheap versus growth stocks.

As the global economy becomes more knowledge-based and reliant on new technologies, growth indices will outperform because of an overweight in the dominant industries of our time.
14) The Russell 3000 Growth Index has an 18 percent overweight in technology sector and a 21 percent underweight in financial services against its value counterpart.

That’s what’s driving overall outperformance more than anything.
15) What matters over the long run are the sectors you invest in. Investing style is less important.

It’s not that value investing is suddenly out of favor; rather, it’s that the sectors composing value indices are in secular decline.
16) Investors are most astonished when someone suddenly discovers what everyone really ought to know.

I believe the rotation from value to growth is the start of a secular trend that will persist over many decades. stray-reflections.com/article/166

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More from @jsmian

11 Mar
Come, seek

For seeking is the foundation of fortune;
Every success depends on focusing the heart,

Unconcerned with the business of the world,
Keep saying with all your soul, “Ku,ku,” like the dove
Even though you’re not equipped, Keep searching
Whoever you see engaged in search,

Become her friend and cast your head in front of her,
For choosing to be a neighbor of seekers,
You become one yourself
Day and night you are a traveller in a ship,
You are under the protection of a life-giving spirit
Read 6 tweets
9 Mar
1) As we try to unscramble the complexity of markets, we are always seeking a measure of order from the apparent randomness.

It is interesting to us how markets (mis)behave. As Benoit Mandelbrot said, the chaos and irregularity of the world is something to be celebrated.
2) A self-described “wandering scientist,” pursuing what he called “unpredictable interests,” Benoit Mandelbrot moved across many disciplines at once to find new insights.
3) He spent much of his life as an outsider, seeking to extract an element of order in physical, mathematical, or social phenomena characterized by wild variability.
Read 19 tweets
5 Mar
1) Since the Second World War, there have been three secular bull cycles with numerous cyclical trends occurring in between.

Thinking through them, we can guess what might be coming next. 🤔
stray-reflections.com/article/145/On…
2) The first was from 1950 to 1968.

The S&P 500 rose from 20 to 109 for a gain of 440 percent.

But twelve years into the secular bull market, there was a violent correction.
3) In 1961, stocks had risen 27 percent, with leading technology stocks like Texas Instruments and Polaroid trading at up to 115 times earnings.

And then, stocks “broke,” as The Wall Street Journal described it, seemingly out of the blue.
Read 20 tweets
3 Mar
1) Five years ago, Ken Langone asked Stan Druckenmiller, "What is the biggest mistake you made and what did you learn from it?"
2) Druck said in 1999, after Yahoo and AOL had already gone up ten-fold, he decided to short internet stocks.

He placed a $200 million bet in February and was down $600 million by mid-March.
3) He was very proud of the fact that he never had a down year but now his fund was down 15%.

"I'm finished," he thought.
Read 10 tweets
26 Feb
1) The way we breathe is inextricably linked to the way we live.

I’m embarrassed how long it took me to figure this out.

Given my sinus I’ve been breathing poorly my whole life.

What I’ve learned 👇🏼👇🏼👇🏼

stray-reflections.com/article/170
2) Breathing, with awareness and intention, sits at the heart of spiritual practice.

To let one breath go, say the Sufis, without being conscious of it is a sin.
3) Breathing usually happens without us, of course.

Even if we try to stop, some force overpowers our efforts.
Read 25 tweets
22 Feb
1) If you review all the big declines in bond yields since the beginning of the secular downturn in interest rates in 1981, you find something very interesting.

Thread 👇

stray-reflections.com/article/92/The…
2) From each historic low, the 10-year Treasury yield retraced 50 to 61.8 percent of the drop over a span ranging from 2 months to 14 months.

The fundamental reasoning almost did not matter, this curious pattern held every time.
3) 1981-84: The 10-year yield fell from a high of 15.8 percent in September 1981 to a low of 10.1 percent in May 1983.

Then rose to 13.9 percent over 12 months and retraced 61.8 percent of the decline.
Read 14 tweets

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