Market Rally: Value Investors at a Crossroads
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Your Money Briefing Money and market stories from The Wall Street Journal. I'm J.R. Whelan in New York. The current nine-year market rally has value investors thinking a lot less like value investors. But is it working? We'll discuss in a moment. First, these money headlines.
How has the nine‑year market rally changed value investors’ mindset?
Some potentially good news for motorists. As a global oil glut has evaporated, the U.S. is contending with its own flood of supply, which could bode well for consumers but trip up a broader recovery in the energy sector. The difference between U.S. and global oil prices reached its widest in more than three years last week. Infrastructure bottlenecks in the country's most prolific shale fields have caused supply to balloon in the U.S. Meanwhile, producers are pumping record levels of crude with little means to send it to the for shipping outside the country.
What are the current money and market headlines affecting investors?
Wall Street Journal Streetwise columnist James McIntosh says if all you had to go on was the return on U.S. stocks over the past decade, you'd never guess that the world's financial system had its worst crisis in generations, let alone that stocks had their biggest crash since World War II. Turns out an investor who bought the S&P 500 in June 2008 and kept the money there has scored gains of more than 9% annualized. That's far more attractive than market performance that followed deep recessions and financial crashes in the 1930s and the 1970s, when it took a decade or more for stocks just to recover to pre-crash levels. And Apple co-founder Steve Wozniak has backed fellow West Coast business tycoon Jack Dorsey in calling for Bitcoin to be the world's single currency.
Wozniak said the mathematical nature and lack of human intervention makes a good case for Bitcoin adoption. While that may be aspirational thinking, Wozniak's saying he buys into what Jack Dorsey says, not that he necessarily believes it's going to happen, but because he wants it to be that way. You may recall back in February, Wozniak said he had seven Bitcoin valued at $70,000, stolen by an online scam artist who paid for the coins using a credit card, which they canceled soon after the exchange of the Bitcoins. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. The current nine-year stock market rally has left value investors in a quandary and caused some to rethink what would qualify as a value investment for their portfolio.
Wall Street Journal Markets reporter Michael Worsthorn joins us to look inside the thinking of many in the value investor community. So, Michael, value investors are known for picking stocks that the market has largely overlooked. But the strength of this rally has caused some to actually pursue some of the most widely held stocks in the market.
Value investors are... basically fighting for their survival right now. They've faced last 10 years incredible underperformance compared to index investors. Say, just an S&P 500 fund has greatly outperformed anything any value investors have been able to do. And a big part of that is because they've relied on, say, 100-year-old metrics that Benjamin Graham had really touted. And those are things like price-to-book ratio, that just don't really apply as well in a market today that's dictated and largely driven by high-value technology companies that don't have a lot of assets but have a lot of intellectual property, and they know how to make money off that. So there's been this incredible shift in just how the market is set up.
and the formation of that market, and value investors have had to think about how else do we find those underperforming assets. It's not just so much these older metrics. So they've really had to think about what other types of indicators or ways to show that a company may have a potential to have an incredible rise in value, but just got to be in this new age that we're in right now with the stock market that's really taken place since the financial crisis.
And some value investors have actually, dare we say it, drifted toward growth companies?
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