Running the Money

1. Surviving when value is out of favour

The theoretical case for value investing is built on decades of data. The lived experience includes multi-year stretches where none of that data feels relevant. From 2017 to early 2020, value suffered its worst drawdown relative to growth in a generation. The spread between cheap and expensive stocks widened to levels not seen since the dot-com era - and then COVID hit, compressing the entire cycle into a few weeks. The drawdown experienced as a value investor was something hard to live through, but even harder to explain to someone who simply read about it or looked at the chart.

Managing money through that period teaches you things that no backtest can. You learn that the intellectual conviction built in Why Value? and Why Value Works is necessary but not sufficient. What carries you through a drawdown is the combination of process, temperament, and the honesty to ask whether you are being patient or merely stubborn.

The ability to stick with the process is imperative. But “sticking with the process” does not mean ignoring information. It means having a framework that tells you what counts as signal and what is noise. The environment you operate in matters enormously - as explored in The Investment Environment - and the discipline of following the process in a stressed scenario when short-term outcomes suggest it isn't working. The future returns accrued to those who were able to stick with the style through this very tough period.

Every drawn-out underperformance period generates the same narrative: this time it is different. The old rules no longer apply. The pressure to abandon the style is always framed as structural change, and the practitioner’s job is to tell the difference between a structural shift that genuinely impairs the value premium and a cyclical drought that will reverse. The thinking behind that judgement is the subject of This Time It’s Different.