Why Value Investing is Failing: 3 Reasons You’re Doing it Wrong
Value investing is where smart people go to lose money.
You’ve been told to find "hidden gems." You’ve been told to look for a low P/E ratio. You’ve been told to wait for the "margin of safety."
You’re still waiting. The market is up 25%. Your portfolio is flat. You call yourself a "disciplined contrarian." The market calls you a bag holder.
I spent ten years staring at spreadsheets. I read every Buffett biography twice. I looked for "cigar butts" in the trash. Then I realized the truth: The 1980s playbook is a suicide note.
Here is why your value strategy is failing.
The Balance Sheet is a Ghost Story
In 1970, assets were physical. Factories. Land. Steel. Trucks. You could touch them. You could count them. Book Value actually meant something.
Today, the most valuable assets on earth are invisible. Code. Data. Brand. Network effects. These don't show up on a traditional balance sheet. When you buy a "value" stock because it trades at 1x Book Value, you aren't buying a bargain. You are buying a graveyard.
You are buying a company with old machines and zero intellectual property. The "assets" you think you own are actually liabilities. They require maintenance. They require taxes. They require labor. Software doesn't require a factory. Data doesn't rust. If you are still using 20th-century accounting to find 21st-century value, you are already dead.
I stopped looking at what a company owns. I started looking at what a company controls. Control is the new equity.
The P/E Ratio is a Vanity Metric
A low P/E ratio is not a signal. It is a warning. The market is not a vending machine. It is a prediction engine. If a stock is trading at 8x earnings, the market is telling you the earnings are fake. Or they are about to disappear.
Cheap stocks are usually cheap for a reason. They are being disrupted. They are being regulated out of existence. They have bad management teams who are milking the last bit of cash before the ship sinks.
I’ve seen "value" investors pile into retail, legacy auto, and print media for a decade. They talk about "mean reversion." But the mean isn't coming back. The world has shifted. The mean has moved.
If you buy a company because the P/E is low, you are betting on the past. If you buy a company because the growth is high, you are betting on the future. The most expensive stocks of 2015 were the best performers of 2024. Amazon was "expensive" at $50. Netflix was "expensive" at $100. Price is what you pay. Value is what you get. And usually, you get exactly what you pay for.
You Are Not Warren Buffett
This is the hardest truth to swallow. You are reading the Buffett playbook, but you don't have the Buffett advantage. Buffett doesn't just buy stocks. He buys entire companies. He installs management. He uses insurance float—free money—to fund his bets.
You are playing with a 401k or a brokerage account. You pay taxes. You pay fees. You don't have the "float." You don't have 40 years to wait for a turnaround. You have a life to live.
Value investing requires infinite patience. Most people have the attention span of a TikTok video. You see a stock drop 10% and you panic. You see your neighbor get rich on a "growth" stock and you feel like an idiot. You try to hold for the long term, but your strategy is built on a lie. You aren't a value investor. You’re just a growth investor who is afraid of high prices.
Stop pretending you are an Omahian sage. Admit that you need momentum. Admit that you need the market to agree with you. In the modern world, "being right too early" is the same thing as being wrong.
The Insight: Narrative is the New Alpha
Here is the "Hot Take" your broker won't tell you: Math is a commodity. Narrative is the edge.
Everyone has the same data. Everyone has the same Bloomberg terminal. Everyone can run a DCF model in their sleep. The numbers are priced in.
What isn't priced in? The story. The vision of the founder. The loyalty of the customer base. The "vibe" of the brand.
Traditional value investors hate the word "vibe." It sounds soft. It sounds unscientific. But look at Tesla. Look at Apple. Look at Nvidia. These aren't just companies. They are religions. Their "value" isn't in their cash flow today. It is in the collective belief of millions of people in their future.
In a world of infinite liquidity, money flows to the best story. If you can’t explain why a company is cool, don’t buy it. If you can’t explain why the next generation will love it, don’t buy it. If the only reason you’re buying it is a spreadsheet cell, you’re going to lose.
The new value investing isn't about finding "cheap" things. It’s about finding "unbeatable" things. It’s about finding companies that have a monopoly on the future narrative. I’d rather buy a great company at a fair price than a fair company at a great price. But more importantly, I’d rather buy a visionary company at a "crazy" price than a dying company at a "steal."
The "steal" will steal your time. The "crazy" will make you rich.
The Shift
I stopped looking for "undervalued." I started looking for "underrated." There is a massive difference. Undervalued is about the past. Underrated is about the potential.
The market doesn't care about your "margin of safety." The market cares about dominance. Find the companies that are dominating their niche. Find the companies that people can't live without. Ignore the P/E ratio for a second and look at the product. Do people love it? Or do they use it because they have to? If they love it, the value will follow.
Forget the cigar butts. Start looking for the rockets.
What is one stock you think is "expensive" but you secretly know is going to double?