The most popular strategy today might not be popular tomorrow.
I started investing in 2017. Midcaps and small-caps were roaring. The word growth was around the street and everyone I met was interested in equities. Smallcaps and midcaps were the talk of the town. The pain felt by those indices over the next two years was terrible to say the least. A similar thing is happening today in 2024.
Times change, and no investing strategy works all the time. Value investing worked for some time until it didn’t and when everyone thought it was dead, boom it rose from the ashes to give multi-baggers. It has happened many times and will do so again in the future. I have realized that most people in the market have a really short memory. They forget the cycles and operate on the assumption that the strategy working these days will work indefinitely into the future. When confronted, the line ‘this time is different’ pops up.
Many forget that owning a stock is owning a part of a business and many times stocks do not correctly value the underlying business well enough. This leads to inefficiency which value investors can exploit. Sometimes they are undervalued and other times they are overvalued. And it takes time for the market to recognize their true value. Many get impatient and abandon the story altogether. Conviction is key even when others around you are making stellar returns and your stock returns have been lagging.
Bull markets have a charm. It makes common folk and even professional investors suspend logic and go with the irrational swings of the market. Value investors tend to become momentum and growth investors as the strategy of their choice starts to take a beating. Regardless, it always pays to be logical and rational even though the world is going irrational. Thinking like a businessman scouting for great businesses at reasonable prices will eventually reward investors. Buying fundamentally strong companies at reasonable valuations over the long term makes it hard to lose money if one can withstand the volatility and emotional swings with it.