Our thoughts is that Deep Value works but we will give more allocation to Deep Value coupled with a Special Situation. The catalyst and optionality which are not price into such situation makes the upside more violent and quicker. In addition, we are trying to move away from a diversified portfolio towards a more concentrated portfolio. That require tons of conviction which Special Situation + Deep Value can give to me unlike just Deep Value... The ability to entertain a drift in thesis is a plus as well.
Changing styles is often a difficult consideration. Too stubborn, and you end up losing money for decades. Too fickle, and you end up as a performance chaser that gets whip-sawed around.
My deep value component of the portfolio has similarly underperformed my expectations in the past 3-4 years (mid single digit CAGR). After some thoughtful considerations, I'm still allocating the same weight to the style, because it's worked so well for me for >10 years. Will probably rethink again if the underperformance persists for another 3-4 years.
I see it this way, Buffett is probably still a great investor despite a 10-year underperformance, because he had outperformed for 40-50 years. Similarly, I'll cut the deep value style more slack since it's done so well for me for a long time, while the poor performance has been short relatively speaking.
Why do we gravitate towards Special Situation investing?
Our thoughts is that Deep Value works but we will give more allocation to Deep Value coupled with a Special Situation. The catalyst and optionality which are not price into such situation makes the upside more violent and quicker. In addition, we are trying to move away from a diversified portfolio towards a more concentrated portfolio. That require tons of conviction which Special Situation + Deep Value can give to me unlike just Deep Value... The ability to entertain a drift in thesis is a plus as well.
Changing styles is often a difficult consideration. Too stubborn, and you end up losing money for decades. Too fickle, and you end up as a performance chaser that gets whip-sawed around.
My deep value component of the portfolio has similarly underperformed my expectations in the past 3-4 years (mid single digit CAGR). After some thoughtful considerations, I'm still allocating the same weight to the style, because it's worked so well for me for >10 years. Will probably rethink again if the underperformance persists for another 3-4 years.
I see it this way, Buffett is probably still a great investor despite a 10-year underperformance, because he had outperformed for 40-50 years. Similarly, I'll cut the deep value style more slack since it's done so well for me for a long time, while the poor performance has been short relatively speaking.