market folly

Curtis Macnguyen's value-oriented hedge fund Ivory Capital says that the current market is very difficult for fundamental value investors as market participants opt for growth over value.

Earlier today we posted up Ivory Capital's Q2 letter and in it they outline the main reasons why the rules of value investing aren't working:


1. Excess Liquidity: "If there is very little cost to money, then it matters much less how much one is willing to pay for an asset; valuation becomes less relevant."

2. Scarcity Value of Growth Stocks: Investors are willing to pay-up for revenue growth in a low growth environment.

3. Mutual Fund Flows & ETFs: As value funds underperform, investors sell them off, depressing prices even further.

4. Quantitative Strategies: Models have de-emphasized valuation and emphasized momentum and revenue growth instead.

5. Poor Capital Allocation: Large/mega cap companies aren't allocating efficiently, creating an overhang in shares. Activism is needed to alleviate this.

6. Short-term Focus: There is a ton of pressure on funds from investors to generate returns NOW. Managers sell positions that aren't working (i.e. value stocks), sending shares lower. We noted how fellow hedge fund Shumway Capital shut down mainly due to short-term fixation by investors.



So while many value investors are having a hard time in this market, momentum chasers are seemingly having a field day. Be sure to check out Ivory Capital's investor letter for risks in the current market and updates on their current positions.