In the world of finance, this is even more true, if that is possible, as selective memory is compounded by the envy aroused by investors who, year after year, outperform the market, whilst the majority flounder in a sea of mediocrity. Numerous studies indicate that, over a 10-year period, more than 80% of funds prove unable to outperform their benchmark index.
Just a year ago, numerous voices were raised criticising the heavy losses suffered by funds whose managers are guided by the principle of ‘value investing’ developed by Benjamin Graham and David Dodd, pointing to their inability to stay out of the market during periods of sharp decline. Many columnists in prestigious newspapers, but above all second-rate bloggers, did not hesitate to call this investment philosophy into question, perhaps driven by that unhealthy envy so prevalent in the Spanish character, or perhaps because it sells better to criticise and kick a man when he’s down.
This is not the first time comments of this sort have been made. In fact, as far back as 1984, Warren Buffett pointed this out in an article entitled “”The Superinvestors of Graham-and-Doddsville", noting how many academics and investment professionals argue that there may be inefficiencies in share prices since, in their view, the market is efficient because its participants have access to a vast amount of information that ensures these prices are fair. Mere luck is used to explain the superior returns of investors who beat the market year after year. Without going too far back, during the tech bubble, the prestigious magazine *Institutional Investor* published a cover story with the following headline: “Value Investing: Can it rise from the ashes?” and even the *New York Times* asked “What is killing value fund managers?”
What many did not bother to mention – probably out of ignorance – is that, unfortunately for value investing, and this is one of the main criticisms levelled at it (and rightly so), when all the indices experience such sharp falls as we saw last year – in this case, moreover, triggered by a multi-crisis from which we are still trying to recover – the market does not distinguish between good and bad companies, and everything falls regardless of whether it was overvalued – as was the case with banks, insurance companies and property firms, to give a few examples – or whether its price did not yet reflect the company’s true value.
