The patience required to be a true value investor can border on the masochistic, and the painful wait for a 'value' style to decisively reassert its historic record of superiority has been made all the less comfortable by recent comments from some key figures from the pantheon of value investing champions. No lesser investor than the great Warren Buffett has lamented not getting into tech stocks sooner, while also buying shares in Apple (US:AAPL). Meanwhile, in a recent quarterly letter from asset manager GMO, the company's much-lauded chief investment strategist, Jeremy Grantham, set out an argument that a corporate diet of lots of cheap debt has helped profit margins find a higher equilibrium level that could support higher valuations (compared with the period from 1935 to 1997) for decades. Cries of "capitulation" no doubt abound.
Importantly, though, to say today's higher valuations can be sustained is different from saying valuation doesn't matter. Indeed, as Mr Grantham himself stresses: "What it [a higher equilibrium market valuation] does not mean is that cheaper is not better."
What's also worth remembering is that investors using an investment discipline based on valuation need not be constrained by the narrow, dogmatic interpretation of 'value' that's required to construct a 'value' index. The diverse ways in which the concept of 'value' can be applied was highly evident at the recent London Value Investor Conference - now a major event in UK value investors' calendars. Shares tipped by the conference's many high-profile speakers ranged from classic cyclicals (easyJet, EZJ), to companies with tangible assets valued at deep discounts (Hong Kong, family-controlled Reits), to mature cash-generative businesses taking "moon shots" (Menzies, MNZS).
However, for me, perhaps the most illuminating talk on how diverse 'value' is as a concept came from buy-and-hold doyen Nick Train, who described his transformation as a value investor. Having spent the early part of his career hunting for value opportunities created by investment cycles, he came to a realisation that what created the best value - in his opinion - was the cumulative investment gains from buying into sustainable growth trends. From this perspective, being able to put faith in the fact that some things just keep on getting better, rather than head towards an inevitable decline, can be regarded as a core foundation of 'value' investing success.
From a more prosaic 'macro' perspective, there are some grounds to think we may just be seeing a hiatus in value's revival. Political analysts at BCA Research have recently been convincingly suggesting that the Republicans' need for populist policies to trumpet during next year's mid-term elections should make it easy for the Trump team to hoof through a reasonably impressive stimulus package - a prospect the market has become very sceptical about judging by the flattening of the US yield curve (an indicator of expected interest rate changes) to an eight-month low.
Meanwhile, Mr Grantham's highly regarded GMO colleague James Montier takes a different view on current valuations, arguing in a piece he penned in March that markets have priced in what he regards as the highly unlikely scenario of "secular stagnation forever". Based on a dividend discount model, he found negative 2 per cent real interest rates would need to persist for a historically unprecedented 90 years to justify current valuations.
