Brandes Investment Partners, 2008
In this interview, he discusses the merits of value investing and what has – and hasn’t – changed about the stock market over the past 40 years.
Value investing has been a successful strategy over long time periods, yet only a handful of market participants are able to adhere to its tenets. Why do you think value investing remains so difficult for investors to stick with?
I get this question a lot from people who aren’t quite familiar with value investing and the stock market in general. While the techniques and thinking behind value investing are simple, there are two basic things that make it a difficult investment discipline to follow. Both of them have to do with behavioral economics.
Ben Graham didn’t call it behavioral economics, but that’s really what he was talking about in The Intelligent Investor when he talked about “Mr. Market.” Mr. Market really represented the behavioral biases investors are subject to. That’s the first thing that I think makes value investing so difficult. It’s unnatural for humans to think totally different from the crowd. I don’t know why that’s true, but it’s true. It’s difficult to act completely independent. It’s difficult to disregard conventional thinking.
But that’s also what’s good about value investing. It’s totally different from conventional wisdom, and it has worked over the long term. Sometimes it’s difficult to see that, and for human beings, it’s tough to act different from other investors – even if we believe the process will work.