Posted by Davy on August 30th, 2009 in Worth Reading (links to articles, etc.)
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Fair or not, that is how I view Jason Zweig, the weekly writer of the Wall Street Journal’s Intelligent Investor. Before he got his gig at the Journal, Zweig was familiar to many value investors for his in-depth commentary in the revised edition of Benjamin Graham’s seminal investment tome for the layman, The Intelligent Investor.

But Zweig, first in his book, Your Money and Your Brain, and now in his weekly column, comes off strongly as having abandoned value investing. While it is entirely possible he made so much money as a value investor that he no longer wishes to spend the time required to maintain such an investment strategy, my sense from reading his work suggests a sense of frustration with value investing. I realize I am making these statements without citing specific passages so take them with a grain of salt.

Anyway, Zweig’s latest column is yet another example of the confused amalgamation of Zweig’s investment foci, which is named after the father of value investing and frequently references prominent value investors but consistently recommends index investing and dollar-cost averaging (perhaps Zweig could rename his column “The Vanguard Investor” or “Stocks for the Long Run” to relieve my cognitive dissonance).

Zweig cites noted value investor, Robert Rodriguez of FPA Capital, who is concerned about the stock market at its current levels. Three-time winner of Morningstar’s fund manager of the year award, Rodriguez starkly states, “People deploying capital [in the current market] will end up destroying capital.”

Zweig goes on to point out the stock market’s high valuation, based on the 10-year adjusted P/E ratio, at 18.4x earnings, is well above the historical average of 16.3x. He then notes that insider-selling ratios are astonishingly high, with corporate insiders selling 31 shares for every share bought. Over the long term, insider selling has averaged 7-to-1. As he says, these are the people running corporate America — what do they know that is causing them to sell as everyone else is buying?

Despite all of that, Zweig states that he is not as worried as Rodriguez and goes on to recommend dollar-cost averaging in this market. First off, while dollar-cost averaging may not be a bad strategy (this is a whole other debate), it is most definitely not value investing and really, requires little “intelligence” — so why is this column called the Intelligent Investor? But perhaps Zweig’s comment on Rodriguez’s worries is the more telling statement.

For me, the main tenet of value investing is that the investor should always be worried, maybe not about the same things as most of the market, but worried nonetheless. After all, that’s the primary driver behind the margin of safety principle — what if my thesis and valuation on a stock is wrong?  Benjamin Graham considered the future a threat to an investor’s carefully crafted investment thesis. Seth Klarman has made his reputation (and stellar returns) on avoiding risk.  Warren Buffett’s main criteria for future chief investment officers is the ability to worry about market events that may have no historical precedent (sci-fi market risk?)!

Zweig takes stock of an economy expected to run a lower pace of activity by experts from Warren Buffett to Bill Gross to Robert Rodriguez. He points out the market’s premium as measured by the 10-year P/E ratio. Zweig sees insiders selling at a rapid pace. But he’s not that worried and recommends dollar-cost averaging into an expensive stock market.

Give up the ghost, Jason. Your column has very little to do with the “intelligent investor.”

WSJ: Why Investors Need to Slow Down [$]