Modest Proposal – Value is Dead, Long Live Value

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:59)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (1:24)
A very short introduction today because my guest is anonymous. Suffice to say, he manages a large pool of private capital. He goes by the pseudonym Modest Proposal and his Twitter presence is one of the reasons I first got on and now stay on that platform. He's level-headed, smart and skeptical by nature, all of which made for a great conversation. We discussed how difficult the market has become for active investors, thematic investment opportunities and the potential sources of market mispricings.
Please enjoy our conversation and let me know what other anonymous accounts you'd like to hear from.
So the framing of this conversation is going to be value investing, weird overreactions, mispricings in what has become a very competitive and difficult market. Maybe just start by giving your impression of how value investing specifically has changed, maybe what you view as the drivers of the historical outperformance of value and whether or not those same conditions or that same opportunity set exists at all today.

**SPEAKER_3** (2:16)
Yeah, I mean, it's something that I've thought a ton about. I came into the business working with a guy who was a traditional deep value, loved net nets and discounted cash, and so sort of steeped in that mindset and spent probably far too long studying the early days of value and all that. So I come to this sort of point where I look back over the last 10, 15 years and say, What happened? Why are we at a point today where people are questioning it? Does it still work? And obviously, if you're doing that, there's the chance that right now is the moment to get in. But people have been saying that for five years.
And so what I look at is I love how Jeremy Grantham talked about there was career risk to owning value stocks, particularly if you're a discretionary manager, right? If you're in the 70s and 80s telling people you were buying whatever it was you were buying at the time that was out of favor, there was real career risk. And Buffett's talked about this forever. And I think the seminal moment was 98 to 2 And if you go to that period of time, you have value managers being called the dinosaurs left out. They don't get the new economy. And so for two years, most of them dramatically underperformed. And that's when, you know, the comments, I'd rather lose half my shareholders than half my shareholders' money and all that famous sound bites came to be. And then what happened is obviously growth imploded. The S&P was down 00, 01, 02, and value managers flourished. And so in a sense, not only did the career risk of owning value go away, but it was almost like value became lionized. And henceforth, everyone says they're a value investor. You never hear anyone anymore say, I like to buy really expensive stocks that are going to go up a lot more. There's more career risk today, I think, in saying I'm a momentum investor or I like to buy really expensive good companies than there is to say I'm a value investor. So you had that sort of career risk angle change and simultaneously you had a ton of academic research throughout the 80s and 90s that really showed there was a value premium and it worked. And so then folks like your father and other smart people said, we can systematize this.