A recent article in Barron’s offers insights for value investors from Ariel Investments founder John Rogers.
Here are some key takeaways from Rogers’ comments:
- The markets are underestimating the strength of a post pandemic recovery, which will bode well for smaller companies and cyclical businesses that have been ignored in recent years.
- On the growth versus value mindset, Rogers explains, “To be a value investor, you have to truly be a contrarian and be comfortable buying things people hate. That’s such a different persona than that of someone who loves buying something that has gone up yesterday and [has] all the ‘obvious’ reasons why it’s going to go up forever.”
- According to Rogers, there isn’t a new generation of value investors emerging, “which is another sig that people have given up on this sector.” But he adds, “that’s where the opportunity comes.”
- On the potential for a value reversion, he said, “Fingers crossed, we are at a tipping point,” adding, “the signs have been there for a while and valuations are too far apart.”
- “As interest rates go higher and inflation starts to come back, the value of future earnings of growth stocks won’t be valued as richly. A higher-interest-rate environment is going to be a great tailwind for value investors.”
- On Fed policy, Rogers argues that things may change sooner than many expect. “The economy is coming back strong,” he asserts, with a lot of pent-up demand. “We’ll get this huge stimulus plan from President Joe Biden, and it’s going to put a lot of pressure on commodity prices and wages.”
- Sports, says Rogers, will be “back bigger than ever.” He also gives a nod to media stocks which “have recovered strongly.”