The Market’s Real CheapThe Acquirer's Multiple
Q4 2022 hedge fund letters, conferences and more
In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss The Market’s Real Cheap. Here’s an excerpt from the episode:
Tobias: -I was trying to make was that there is always a reason to be scared in the market. And on the other hand, we’ve got AQR. Like we talked about last week, Gotham, the Alpha Architect website, all those guys have got– [crosstalk]
Jake: They all kind of point in the same direction, right?
Tobias: We’re in the 90th, 95th, whatever percentile of cheapness. And you can say, “Well, clearly, you can go to 100 percentile.” That’s happened in the past. You can go beyond the 100 percentile. There’s nothing to– [crosstalk]
Jake: Yeah. You can make a new 100th percentile. [laughs]
Tobias: Yeah. When you look at the Gotham side in particular, when you go beyond that 90th percentile, you look at all of those dates, it’s like 2000, 2009. There are dates that you’re like, “Yeah, I want that date, because the forward returns are 100% plus.” But to get there, it’s painful.
Jake: What weird about that though is that those dates also corresponded with other valuation of the market metrics that made it look historically much cheaper than today, which is a weird thing to square. You know what I mean?
Tobias: Don’t you think it’s like a 2000 type scenario, where the market itself can be quite– I don’t know. Maybe the market is not expensive, because the FAANG is a big chunk of it now, and maybe FAANG is more reasonably valued given where it is. But you can have the split where-
Jake: Yeah. The bifurcated market structure.
Tobias: -value’s undervalued. The market is overvalued. The market does nothing. There are lots of people out there saying the market is going to do nothing for a long time. Last time I looked at the estimate, which assumes mean reversion over a decade, I think it’s at 3% or 4% annually at the moment.
Jake: That’s all dividends.
Tobias: Dividends are less than 2%. Now, there is some top level– [crosstalk]
Jake: It might come back. Who knows?
Tobias: That’s before inflation, it could be negative on an inflation on a real basis.
Jake: Yeah. How many portfolios today are– structured or how many in financial plans for retirement, or pensions, or whatever that assume some rate of return in them have that as a permutation within the plan that you could be 10 years from now and have no price appreciation?
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Article by The Acquirer's Multiple.