What is a realistic return on value investing?

[Wildreamz]

Personally, I have my doubts whether value investing is still "worth" it. In the best case, how many multi-baggers do we expect in a lifetime ? And even if we managed to hit several multi-baggers, how much did we put in the stock ? Assuming a $50k investment, hitting a 5 bagger will "only" return $250k which may not even be able to buy a 5 room flat. If we hit 3 multi-baggers, and assuming we are willing to "risk" $50k on a single counter, then yes, it is probably one FOC 5 room flat, but still not quite the much coveted private property which we can "own". Furthermore, the cost of living in S'pore especially those having children / aged in-need parents is pretty high, e.g. paying $1k a mth for tuition is not uncommon, day care services for seniors are not cheap either. This means any spare cash to invest is limited, and any dividends received will probably go towards relieving cost of living pressures. In the worst case, what if the investment(s) turned out to be bad ? It cld mean wiping off years of savings.

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$50k total cash invested seems quite modest (an amount that could be saved up after a few years, with fresh-grad pay). Scale it up a little, with consistent savings, and focus on your career, you would go very far, because compounding over a life time goes a long way. Say just a modest 5% returns annually, compounded over 50 years, would amount to an 11-bagger, more than enough for a decent retirement.

Reminds me of the Buffett quote, "Nobody Wants to Get Rich Slow" https://www.spillsspot.com/finance-blog/...rich-slow/

[BRT]

I have always had a hard target (say, 10% p.a.). But recently, I have been re-thinking whether it makes more sense to instead to have a target that is x% above the stock index, or interest rate. The rationale is that both the stock index and interest rate reflect the market-average/risk-free rate, and hence, reflect the 'difficulty' of generating returns, during any particular period.

For example, wouldn't achieving a 10% p.a. return on your stock picks be more difficult when interest rates are 1%, than when it is say 7% (during the 70s-80s)? Although 10% might not look like much, it does mean that this investor is able to grow his/her money much faster than the others who are say, earning 3% from the index, or 1% from savings deposit.

IIRC, during WB's early career, his target was to outperform the index by 5 or so percentage points. I think this might a better approach than having a hard target, which may or may not be realistic, or reflective of one's ability to perform (better than market rates).

i think how we define beating the market/successful investing is different for each of us. i've thought about this on and off, without getting to much of an answer for myself. but you reminded me of some things i read which i thought made a lot of sense, even as they may seem to go against each other in some areas.

1. howard marks. what he aspires to do is perform okay as the market is doing well, but more importantly lose less as the market tanks. that's his idea of beating the market, which is well aligned with his personality and natural cautiousness.
2. michael leong. i recall reading somewhere in his book that he thinks it's strange to measure your performance based on how the market/index fared in a year. the angle he took was to ask if one should feel good about losing 15% in a year where the index lost 20%? in the end, you still have mouths to feed, a lifestyle to maintain etc. so he adopts more of an absolute return kind of thinking.

[karlmarx]

Instead of trying to identify the next exceptional undervalued gem(value investing), it may be more efficient & productive just accumulating strong critical blue chips(e.g. DBS which "cannot afford to fail" without severe implications to S'pore) whenever recession strikes, and hold them "forever" while collecting dividends yearly.

I think this is good advice for investors who wish to spend more of their time/energy/attention on other aspects of their life. Like family, career, or whatever that one may rather be doing. The investor's financial goal in this case may be to have a modest retirement fund at the end of the day. But the investor has to be willing to accept and be contented with average/moderate returns.

Tedious stuff like reading prospectuses, annual reports, papers, books; assessing the prospects and risks companies are exposed to, and their probability of occurrence; and waiting for opportune moments to perform buy/sell transaction, should all be left to the hopelessly obsessed aiming for the moon.

[soros]

Over the years, the benefits of value investing have been espoused by several market gurus and fund managers. Discussions around this investing philosophy dwell on the rewards that await patient value-conscious investors. However, in recent years, those dabbling in the value theme have been left largely frustrated. Multiple value funds have given poor returns over extended time periods. So is there any point in keeping the faith in value funds?

For the past five years or so, the equity market has been powered largely by socalled growth stocks. Companies that exhibit higher earnings growth trajectory or ‘quality of earnings’ have been favoured by investors. They have not been deterred by the rich valuations of the high growth companies. Expensive names from this space have become more expensive. Meanwhile, value stocks have been left behind. Value investing refers to picking businesses whose share price is trading below the intrinsic value, or at a price that is not reflective of their true worth.

However, looking purely at this recent performance would be overlooking a critical facet of value investing. Investors should note that value funds can underperform significantly for extended periods of time. This is particularly true in market conditions like the present, when priceearnings (PE) multiples drive share prices rather than earnings growth. Experts say the strength of a value-driven fund lies more in its ability to outperform or protect the downside better during a market decline. O ..


https://economictimes.indiatimes.com/wea...406712.cms

I think "value investing" is a form of "buy and hold" investment strategy in a portfolio of shares which are bought at prices below NAV.
You would still need to remove the non-performers if they do not show any price rise after 3 years.

Looking for shares giving a return of x % before deciding to invest does not seem to be the correct way to invest.