1/ Some observations on valuations and value investing, specifically the distributions and spreads of valuations, relative to history.
To start, here is the distribution of EBITDA yields (higher = cheaper) through time (shaded=overall average, red=each year)
To start, here is the distribution of EBITDA yields (higher = cheaper) through time (shaded=overall average, red=each year)
2/ There is a common narrative I'm seeing is that because value has gotten its teeth kicked in for years, its going to bounce back hard, like 2000. But the distribution of valuations is VERY different now vs. then.
Here's just those two periods, side by side
Here's just those two periods, side by side
3/ If you dig into the differences between 2000 and 2017, you see a very different sector profile.
in 2000, you see tech an telecom are super expensive (low yields), but others more reasonable.
in 2017 (today), valuations are far more homogeneous
in 2000, you see tech an telecom are super expensive (low yields), but others more reasonable.
in 2017 (today), valuations are far more homogeneous
4/ Another way to look at this is the valuation spreads across metrics for the Russell style indexes. You can see that besides price/book, spreads are fairly tight relative to history, and nothing like 2000. 
5/ we are going to be exploring this phenomenon in deep detail fairly soon, but suffice to say, value doesn't necessarily look like a "coiled spring."
The degree to which these things predict future factor performance is questionable.
Stay tuned for more in a few weeks.
The degree to which these things predict future factor performance is questionable.
Stay tuned for more in a few weeks.
