Value Investing During Periods of Euphoria

An excerpt from Bruce Greenwald’s Value Investing: From Graham to Buffett and Beyond, first published in 2001. Presented without comment. Readers are encouraged to form their own conclusions.

During periods of investor euphoria, value investing will appear stingy and pessimistic in its estimates of intrinsic value. Its requirements that value be found in as­sets and earnings power will seem antediluvian when radically new tech­nologies or other innovations are promising a boundless future for cutting ­edge companies whose first profitable quarter is always a few quarters away. Value investors understand that there are some games at which they are not adept, and the only sensible course is to decline to play. A canon they rely on is, “Use knowledge to reduce uncertainty.” This canon has served them well, and it would be foolish to jettison it and buy into tenuous pro­jections of future wealth, no matter how seductive they might be.