Ben Graham Conference at Fordham: Value Very Much Alive

Ben Graham Conference at Fordham: Value Very Much Alive

The fifth Ben Graham Annual Conference, the marquee event of the CFA Society New York, took place as scheduled on June 27, at Fordham University, Lincoln Center.

As its name suggests, this conference is intended to promote, and to share ideas about the application of, the investment principles of Benjamin Graham and other influential value investors.

The lead sponsor of the event was the Gabelli Center for Global Security Analysis, created at Fordham in 2013 with a gift from legendary investor and alumnus Mario Gabelli. James Russell Kelly, the director of the Gabelli Center, in an interview Thursday morning said of the conference, “It was sold out. We had a gigantic conference room – 350 seats – it was filled.”

Value is Very Much Alive

The day’s first panel discussed value investing opportunities with the theme “Is value dead?” The panelists unanimously agreed that it is not. One panelist, Warren Koontz, head of value equity at Jennison Associates, made this point using the Russell 1000 for the last 20 years: that is, the period since 1998, shortly before the dotcom rash. There has been a good deal of sector rotation since then, he said, and there have been times when investors couldn’t think of any good reason to return to value investing because growth was so enticing. But overall, the Russell 1000 Value beat the Russell 1000 Growth.

In an interview the following day, Koontz said that there was a “fairly strong consensus” on the continued life of value investing among the participants. As a general rule, when it is hard to find any good reason to employ value over growth investing, that is evidence that there is about to be a turn. Indeed, the late ‘90s proves this point. The dotcom boom inspired a lot of “Is Value Dead?” columns and even magazine covers, just before all that enticing high tech growth blew up in a lot of faces.  

One ought to consider, too, the degree to which the alternative “growth” strategy is often tied to energy companies, and the pitfalls that creates, as exemplified in the period 2014-15 by a sharp decline in energy prices, and thus in energy equities and related asset valuations.

An Amazon Headline

Amazon is in the headlines just now because it has announced that it will buy PillPack, a very specialized pharmaceutical play. PillPack lets users buy medications in premade doses. PillPack was valued at $361 million during its 2016 round of funding. But according to unnamed sources cited by TechCrunch, the Amazon deal values PillPack at “just under $1 billion.” That huge jump in valuation shows how hot the e-health market has gotten.

What it also shows, to some, is that the old-school retailers in the medicine market, Rite Aid, Walgreen and CVS, may be in some trouble. E-commerce may be about to do to them what it has done to so many old-school book or record stores over the years. The price of these stocks fell precipitously on the news about the Amazon/PillPack deal. On Thursday alone, Rite Aid Walgreen and CVS together lost $11 billion in market capitalization.

From a contrarian and in this case possibly a value-oriented perspective, this may create an opportunity for purchasing the stock of Rite Aid, etc. It is possible that the headlines may have led to more buying than the news actually justifies, and that this may be a moment for being “greedy when others are fearful.”

On the other hand, sometimes those others who are fearful, are fearful for good reason. Koontz observes that such a headline-caused decline “may not give us [value investors] the margin of safety that  we want to make it an actual ‘buy.’”

The Federal Reserve

In the wake of the conference, Koontz also discussed recent – and likely future – moves by the Federal Reserve to tighten the money supply a bit after years of quantitative easing. The Fed, he said, is doing the right thing.

“From the value perspective in particular,” he said, “the rising interest rate is a positive event, in that it helps out the financial sector, which is good for the value style. Of course there is the possibility that the Fed might go “too far or too fast,” but Koontz does not believe that is what is happening.

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