It might look like a value investor’s dream scenario: Major equity benchmarks tumble into bear-market territory, revealing oodles of beaten-up buying opportunities.
Cheap stocks for everyone!
But if there was a takeaway from the Ben Graham Centre’s 2025 Value Investing Conference on Tuesday – when the S&P 500 was down as much as 21 per cent from its recent high amid warnings of a tariff-induced economic nuclear war – it was hardly a rallying cry for buying the dip.
Indeed, keynote speakers sounded as perplexed about the current market turmoil as just about everyone else.
“I find this to be stunning,” said Michael Mauboussin, the head of consilient research for Counterpoint Global and an adjunct professor of finance at Columbia Business School, when asked about the impact of tariffs.
Josef Lakonishok, the chief executive officer of Chicago-based LSV Asset Management, couldn’t say if the current bout of market volatility at the start of U.S. President Donald Trump’s second term would endure.
“A lot of it is driven by Trump’s tariffs and so on, and I don’t think that the market is very good at sorting out what is going on,” he said in an interview after his presentation.
Some of the reluctance to pound the table in favour of stocks during the selloff likely comes from the root mindset of value investing.
These investors tend to be patient sorts who admire the disciplined and methodical approaches of Warren Buffett and Benjamin Graham.
Like their heroes, they painstakingly search for those rare stocks that look cheap based on intrinsic values. Downward market lurches might not expand their hunting grounds by much.
Many value investors also believe that the broad market, as represented by major indexes such as the S&P 500, were ridiculously overpriced as recently as February.
Volatility since then has failed to bring down the overall price-to-earnings ratio to a bargain level or turn high-flying technology behemoths into unloved has-beens – even Tesla Inc., which has fallen about 40 per cent so far this year.
The P/E ratio for the S&P 500 was 27.4-times reported 12-month earnings Wednesday, according to the most recent data from U.S. economist Robert Shiller.
That’s down from a recent high of about 30 at the start of the year, before market turbulence kicked in, but still well above the long-term average of 16.
Jamie Dimon, the chief executive officer of JPMorgan Chase & Co., said as much in his annual letter to shareholders this week, which provided a forceful argument against tariffs.
“It is worth noting that we enter this time of uncertainty with high equity and debt prices, even after the recent decline. No matter how you measure it, equity valuations are still well above their historical averages,” Mr. Dimon said.
And lastly, many value investors are unimpressed with major U.S. indexes, given their greater interest in either ignored small companies, international stocks or hidden gems that lurk well below the surface of, say, the S&P 500.
Mr. Lakonishok singled out exchange-traded funds, the popular vehicles for investing in entire indexes or sectors, as a reason why valuations have become distorted in recent years.
He argued that the absence of active managers in passive index-tracking ETFs fuelled the rise of expensive stocks such as Nvidia Corp. and Meta Platforms Inc. as investors simply piled on.
As investors exit and major indexes veer into bear-market territory, what approaches are value investors taking?
Much of the advice pushed aside today’s market tumult and focused on some of the longer-term approaches that have rewarded investors in the past – namely, tuning out the big-picture challenges, which can exaggerate downside risks for good, well-managed companies.
“Don’t get too caught up in the macro,” said Scott Phillips, the chief investment officer at Tennessee-based Templeton and Phillips Capital Management.
Mr. Lakonishok suggested ignoring the 10 most expensive stocks in the S&P 500 and looking for opportunities among the 490 cheaper ones.
And Ajit Dayal, the founder of Quantum Advisors in India, said it’s important to look beyond the U.S. market because it now embodies more risk.
He called the introduction of tariffs – along with Mr. Trump’s designs on Greenland, Panama and Canada – the “new abnormal.”
“We are living in a very different world. The preservation of capital is facing a lot of missiles and torpedoes,” Mr. Dayal said.
That’s not exactly a hot stock pick. But for value investors, it’s the sort of comment that helps define their approach.