Pzena Investment Management Fourth-Quarter Newsletter Commentary

Value investing may be rewarding in the long term, but can be painful in the short term. Can that be avoided? And is now the wrong time for value?

These are the times that try value investors’ souls, to paraphrase Tom Paine. Our Value and Large Cap Value strategies were each off by more than 12% for the year and our global strategy was down nearly as much. In the second half alone, the declines in our U.S. portfolios exceeded more than 18%. Our newest clients have felt the biggest sting, but even longtime clients have felt the pinch. They know that value is cyclical – Figure 1 highlights the unpredictability of short-term returns – and they also know that over time, the return pattern can smooth out and value investing can be a very rewarding strategy (Figure 2). But the interim periods are no less painful for all that.

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