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26 / 27 value strategy looks best placed to outperform in the current market . In its simplest form , this involves buying a stock for a price that underestimates the value of a business and selling it once it reflects its true worth . For a volatile stock , particularly towards the lower end of the market , this price movement could theoretically take place in a matter of seconds . Could it be argued then that value investing is a type of short-term strategy ? Staveley ’ s response to this question is to the point . “ No ,” he says . “ However , the time horizon for a value investor can end up being shorter than a typical buyand-hold approach .
“ The duration of a value-based investment is determined by the discount to intrinsic value , not by a specific time frame .” He adds that while value investing has only been able to outperform its growth counterpart in a handful of intermittent bursts since the end of the financial crisis , it would be unwise to overlook the role played by quantitative easing in this trend . “ It is only since monetary authorities have partaken in unprecedented levels of stimulation , intervention and manipulation of markets ,” he explains . “ In the 100 years before the last 11 , value was a consistent winner , outperforming markets over many years . “ At an individual stock level , a value investor may end up having a
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What if a stock you buy at a discount quickly moves to a premium ? Surely nothing can go wrong with taking a short-term view and bagging profits ? Dan Brocklebank , UK director at Orbis , recalls finding himself in this enviable position in April 2014 , when he sold a stock he had only bought nine months earlier . However , this almost proved to be catastrophic . The stock ’ s name ? Facebook . “ It dropped ,” says Brocklebank , “ because everyone was going : ‘ This is crazy , it ' s just a thing teenagers play on . What on earth is the possible business model ?’ “ Our view was that , yes , the multiple was high , in the 20s or 30s . But there was a secular shift in terms of advertising moving from offline to online and you could see the revenue was growing very quickly . But it was really hated and that to us was the perfect layout . “ We bought it , then sold it and were very pleased with our return . But we significantly underestimated the growth potential and ended up kicking ourselves and buying it back .”
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