As We See It: Value

Here’s a fun chart one of our colleagues spotted. On August 30, 2020, Salesforce replaced Exxon in the Dow. The following chart shows the total return of each since the change:

Source: Bloomberg

We realize the keepers of the Dow want to stay up with the times, but it’s not like Exxon was going out of business.

We can find no better argument for an allocation to value stocks. Valuation is often driven by fashion. I seem to recall that, at the height of the pandemic, Zoom had the same market cap as Exxon. Fashion. Style. The key thing to remember about stocks is that no one needs to own them, demand is completely elastic. Unlike, say, commodities, the price of a stock is not part of any practical business decision beyond capitalization. In simple terms, that means they can trade anywhere and anytime. It also means that value managers must buy things that are often wildly out of fashion, not our natural human tendency.

So, break out the leisure suits, the big lapels, and the super wide ties, and buy some value.