01 11/19 01/11/2019


01-11-2019 10:20,
Léon Kirch, CFA

In his most recent and highly recommendable book called “Propaganda”, German author Steffen Kopetzky describes the work of Sykewar, the Propaganda-department of the US Army during WWII and later during the Vietnam war. Sykewar produced flyers and propaganda material with the aim to hamper the moral of the enemy troops. The hero of the book is participating for his propaganda work in one of the biggest and deadliest battles for the US Army of WWII, the so-called All Saints battle in the Huertgenwald in the German Eifel where more than 15.000 US soldiers lost their lives. What the US Army experienced in this battle was so difficult that it could not be used in any propaganda material.

As I am writing Nr 78 of the Friday Morning Coffee, I am wondering where exactly the border between factual information and one-sided propaganda is coming out of the value camp. Then again, the fact is that value has been out of favor against glamour to an extreme level as was confirmed by recent work from Dartmouth professor Ken French shown by Bloomberg:  

According to these numbers the most expensive and least profitable US companies, the so-called glamor stocks, have outperformed their value counterparts, the cheapest and most profitable companies by 16.8% a year over the last 6 years through August ( source: Bloomberg ).


Most importantly, Ken French looks here at low valuation in combination with high profitability. The white line on the graph includes companies that may have been value traps in terms of stock price performance but certainly not in terms of profitability. The performance difference between the 2 strategies was only once higher in 50 years of data for the US market and that was in the midst of the dot-com bubble in 1999. Interesting part is, from that moment value re-emerged from the ashes and started to outperform.

We take note that some academics join the propaganda value camp and confirm our views. It may be a good time to think about value as a diversification to the glamor strategies they hold in their portfolios!

Léon Kirch, CFA
Partner & Chief Investment Officer



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