What year is it again?

Billionaire value investor and hedge fund manager, David Einhorn, said in an investor letter this week: “The market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy."

Einhorn’s long/short value-focused hedge fund, Greenlight Capital, has risen just 3.3% for the year to date, underperforming the S&P 500 by more than 10%. However, in the 20 years to 2016, the fund achieved an annualised return of 16.5%. Greenlight Capital has suffered losses on its short positions in Tesla and Amazon, and wondered in his latest letter “if the market has adopted an alternative paradigm for calculating equity value.”

All this sounds awfully familiar, so I decided to go digging through the archives to see when we might have heard this before.

The Dallas Fed’s 1999 Annual Report was titled “The New Paradigm”, and featured a photo of Dallas Fed President Robert McTeer holding a microchip, while he proclaimed “We believe once-in-a-century advances in technology are transforming our economy… Economic progress is speeding up; the speed limit is rising.”

Also in 1999, value investing firm, Pzena Investment Management, asked “Is value investing dead?” in their first quarter note. The eventual conclusion of the note was that no, it wasn’t dead; it’s probably not a coincidence that the firm is still around today.

During the 80’s and 90’s, Julian Robertson ran a long/short value-focused hedge fund known as Tiger Management Group. The fund reportedly returned upwards of 30% p.a. during this period, and accumulated more than USD20 billion in funds under management by the late 90’s.

Robertson famously predicted the dot-com bubble and positioned Tiger accordingly – underweight/short tech stocks. However, as the old saying goes “being early is as good as being wrong”, and Tiger was forced to close its doors in 2000 after heavy losses and redemptions.

Structural shifts in financial markets can happen, but far more often, cyclical changes are mistaken for structural.