David Einhorn Wonders If Value Investing Will Ever Make A Comeback: 'There Have Been Serious Changes To Market Structure'

Zinger Key Points
  • Many market participants either follow quantitative systems or passive investing today, Einhorn said.
  • Very few people know what is the actual worth of companies, the value investor said.
  • Einhorn believes there is an enormous number of companies that are dramatically misvalued.
David Einhorn Wonders If Value Investing Will Ever Make A Comeback: 'There Have Been Serious Changes To Market Structure'

David Einhorn, founder and president of Greenlight Capital, has expressed doubts that value investing will ever make a comeback in an era dominated by algorithmic trading and passive investing.

“I don't know if it (value investing) ever comes back. There have been serious changes to the market structure. Most of the value investors have been put out of business,” he told Bloomberg during the Robin Hood Investors Conference.

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A value stock traditionally has a lower price when compared to stock prices of companies in the same industry.

No Value Investors: Einhorn, known for his famous bet against Lehman Brothers before it collapsed in 2008, said most market participants these days cannot do value investing as they are untrained or inexperienced with performing valuations. 

“Their structure does not allow them to [do value investing]... Or their system is a quantitative system, or a trading system, or an algorithmic system. Or your style is to just buy things that have charts that go up into the right,” the investor said.

Einhorn recalled times when value investors would buy stocks at reasonably low multiples and end up with a return of 50%, as other investors caught up with their view.

“That isn't happening anymore because nobody even notices what actually happens at these companies,” he said.

Real Worth: The billionaire investor also pointed out that the silver lining is that very few people know the actual worth of companies, which helps value investors like him score big.

“There is an enormous number of companies that are dramatically misvalued in ways that we haven't seen before. So, if before, we might pay 8-times or 9 times or 12 times, now we can buy a lot of those companies at 3 or 4 times their earnings. If they are buying back 10%, 15%, 20%, or 40% of their stock in some cases, eventually, we will get paid by the company as opposed to having other investors figure out what we thought we figured out before them,” he said.

Value Stocks: Benzinga Insights has compiled a list of value stocks in the consumer cyclical sector that may be worth watching. The list includes names like LCI Industries LCII and Hanesbrands Inc. HBI.

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