Longtime readers will remember that much of Camarda’s value investment philosophy springs from the teachings of Columbia University (one of our portfolios is named for it), the Ivy League school in NYC where Warren Buffett was taught by Ben Graham (the historical father of value investing), and where Joel Greenblatt has been teaching buying good stocks on the cheap for some time. Professor Greenblatt recently granted an interview to Barron’s (which you may remember has named Jeff Camarda “one of the best financial advisors in America”*), from which we have extracted many of these gems.
Let us begin by reminding readers that Camarda is primarily a value investor, and that the past few years have been rough on value investing, with many other types of stocks risking to probably unsustainably high levels of overvaluation. Greenblatt reminds us that “value investing works over the long-term, (and usually) within two or three years,” but that investors seem to have grown increasingly impatient in modern times, don’t know how to properly value stocks, and tend to blindly chase returns. Camarda thinks this is a big reason behind the popularity of index investing – the risks of which most people don’t really understand – and that many following this path will get burned in the years to come. Value investors like Camarda don’t do that. To use Greenblatt’s analogy, we remember that stocks are “not just pieces of paper” like baseball cards, but represent actual functioning businesses creating cash flow, and that we want to buy that cash flow as cheap as possible. Most people – including many investment professionals – don’t know how to properly do this, even if they were willing to spend the time. Especially in an overvalued period like this “the intelligent thing is to buy the cheapest things you can find…” Like him, we also seek to cheaply own “companies that gush cash with huge returns on capital” (and we use Greenblatt’s methodology to analyze them) and remember that over the long term “value investing works like clockwork…but sometimes your clock has to be very slow.” We think the recent period is a good reminder of this, with some stocks rising to crazy levels, but good value opportunities like those Camarda portfolios targets seeming to languish. This looks like it may be changing, and it may be time – finally – for value strategies to really shine into the exceptional performance they have been academically demonstrated to reliably represent. Value investors, take heart! Your patience may – just may – be amply rewarded soon.
