Is the market going down? Probably.
Are there a lot of bargains out there? YES Are there going to be more? Probably!
It is interesting how badly value funds are performing in this environment. When you buy value stocks, or at least when I bought them, I thought that the margin of safety represented by buying stocks at less than their intrinsic value would protect me from the worst of the downturn. Well, unfortunately, a lot of those value funds owned a lot of financials (and still do)... we all know what has happened to them. Not so long ago, you couldn't get into a Dodge and Cox domestic fund and NEVER heard an ill word spoke. Now the funds are open and redemptions lead deposits. Go figure? Value domestic and foreign funds have even trailed the neutral benchmarks and peers. As the market sinks, they find themselves fully invested, their NAV sinking, and their depositers fleeing. They are in no position to buy... that's not a good thing for the markets or their shareholders.
I AM a value investor, but value investing has taken it in the shorts! Why? That's an interesting topic, I think. I don't think it is as simple as saying that value and growth take turns outperforming. I don't buy the measures of growth and value. I think that the rotation you have seen is all about fundamentals and sector rotation. A few years ago, the stocks that were truly cheap were commodity and energy firms, not financials that were bloating earnings by ignoring risk and using excessive leverage. This trend, if you recognized it, had nothing to do with whether you were a value or growth investor. The real bargains were in stocks that were cheaply priced - energy and commodity firms. The real duds only looked cheap with their generous dividends. The railroads are another example... it is interesting that Buffett was one of the first to see the value there... as he has in Brazil and China before Brazil. There is nothing inconsistent (or opposite) about growth and value... only well timed and poorly timed investments (do I hear a cheer from the T/A folks?).
To perform consistently, whether you call yourself a GARP or a value investor, you really need to consider the fundamentals of the sector you are investing in. That has to be part of how you value a stock. You can't JUST look at the P/B or P/E or how much the price has dropped or the chart... so much for indexing value (an oxymoron imho). You can screen for value, but you can't select stocks using only those screens imho... so much for those quant funds imho.
This has been a very difficult market... and flat or declining markets are always difficult. Over the long term, stocks have gone up a lot. If you only looked at the beginning and the end point, you would marvel that it has been a glorious ride. The truth of the matter is that it was anything but glorious. The market spends most of its time with fearful investors clueless about whether it is going up or down. The 90's were an aberration that will very likely never be repeated. Most of the time, you can't just buy anything (or everything in the case of the indexer) and expect to deposit your 20% gains like clockwork. The market just doesn't normally work that way.
There will be good times and bad... there will be winners and losers... look for what is cheap, but only buy if you believe in the management and business model. You can diversify and still be selective about what you buy. I believe in asset allocation, but I don't believe in letting that drive you to bad investments. In equities, there are always good and bad stocks to own. In fixed income, there are always some investments that will do better than others.
If or when the market goes down, hopefully we can (together) find some uncommon bargains (values) out there. If the market goes up, hopefully we can (together) find some uncommon bargains (values) out there.
erryl
