Beverly (Value) Hillbillies

This is the story of man named Jed
Poor mountaineer barely kept his family fed
Then one day he was shooting at some food
And up through the ground came some bubbling crude
Oil that is, Black gold, Texas Tea

Our definition of value is to buy meritorious companies at a significant discount to intrinsic value with a high margin of safety. Since doing this is more art than science, the margin of safety is important. For the last ten years, we have “shot for food” in value stocks like American Express (AXP), Target (TGT) and Discovery (DISCA). We have “kept our family fed” in an extremely hostile environment for value investment shoppers with the help of a booming bull market in stocks. This boom is built on the back of low inflation and historically low-interest rates. All past momentum has seemed to become more good momentum!

The first thing you know Old Jed’s a millionaire
Kinfolk said, Jed move away from here (Value)
California (Growth) is the place you ought to be
So he loaded up the truck
And he moved to Beverly,
Hills that is, swimmin’ pools and movie stars

“Then one day”, we came across massive insider buying in “bubbling crude” (Occidental Petroleum: OXY)! It came with a ringing endorsement from Warren Buffett and frustration from the very successful activist, Carl Icahn. He had been drilling for profit in OXY and got interrupted by their acquisition of Anadarko. Buying Anadarko came with a ringing endorsement from Chevron, who was willing to dilute their common shares outstanding by 10% to buy Anadarko.

“The first thing to know”, is you don’t get rich quickly in value investing (God willing, you get rich slowly). In fact, anyone watching the last five years in the U.S. stock market would say, “Move away from here.” FAANG (Facebook: FB, Amazon: AMZN, Apple: AAPL, Netflix: NFLX and Alphabet: GOOGL) growth “is the place you ought to be,” so we should “load up the truck and move” to Silicon Valley! In many ways, these super successful tech giants have been the only “place to be” for five years. This has caught the attention of Research Affiliates’ Rob Arnott and was shared by Jason Zweig in his Intelligent Investor column on January 10, 2020, in The Wall Street Journal.

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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