A Vaccine Won’t Cure The 20-Year “Widow-Maker” Trade

Vaccine Cure Widow-Maker, A Vaccine Won’t Cure The 20-Year “Widow-Maker” Trade

When things ultimately go “pear-shaped,” the return to value tends to be a swift event. For investors, it is crucial to grasp what decades of investment experience tell us about the future. When the cycle turns, we have little doubt the value-growth relationship will revert to its long-term mean.

Is The Vaccine Announcement The Turning Point

Recently, Kevin Muir published a piece with an important message:

The virus is done. The scientists won. They nailed it…markets will look through any (short term) negatives and realize the end is in sight.”

He goes on to make a case for “why” the Pfizer vaccine (and the other vaccines that will follow) may be the “silver bullet” that the market has been waiting for. Kevin’s view is the market is a discounting mechanism, and the “Smart Money” will focus on the future. Primarily, he hopes, the “Buying Value/Selling Growth” trade, which has been a widow-maker trade for the past 20 years, will be changed by the “vaccine.” 

Vaccine Cure Widow-Maker, A Vaccine Won’t Cure The 20-Year “Widow-Maker” Trade

I doubt the “vaccine” will cure the ills of “value” any time soon as it does not address the primary issues driving the “momentum chase” currently. Refer back to the Research Affiliates comments above. 

Does a vaccine change:

  • The effect of “data mining” on investment styles? No.
  • The “structural changes” to the market (i.e. proliferation of ETF’s)? No.
  • A crowded trade that leads to a distortion of prices? No.

The “vaccine” does not cure the most massive problem for value stocks – actual value.


The Lack Of Value In “Value”

As a “fundamental” and “value” based investor, the lack of performance in value versus growth has undoubtedly been frustrating. However, one of the biggest problems is the astonishing lack of value in “value.”

The chart is pretty stunning but needs some explanation.

Here is the issue with intangible assets.

“Intangible assets are typically nonphysical assets used over the long-term. Intangible assets are often intellectual assets. Proper valuation and accounting of intangible assets are often problematic. Such is due in large part to how intangible assets are handled. The difficulty assigning value stems from the uncertainty of their future benefits. Also, the useful life of an intangible asset can be either identifiable or non-identifiable. Most intangible assets are long-term assets meaning they have a useful life of more than a year.” – Investopedia

Read the bolded sentence again.

In many cases, the value of intangible assets is often overly optimistic assumptions about the companies worth. We recently quoted Raconteur on this particular issue:

“Tangible assets are easy to value. They’re typically physical assets with finite monetary values, but over the years have become a smaller part of a company’s total worth. Technology disruption continues in artificial intelligence, robotics and cloud computing. As such, intangible assets have grown to represent the lion’s share of corporate valuations. But without a physical form and the ability to easily convert them into cash, working out what these assets are truly worth can be challenging.”

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