(Bloomberg View) -- Buy low, sell high. Buy when there’s blood in the streets. Be fearful when others are greedy and greedy when others are fearful.
These investing aphorisms are all well-known, but today’s investing environment makes them very difficult to follow. Investors are having a tough time finding value in a bull market.
U.S. stocks have been up for eight (almost nine) consecutive years. International stocks finally joined the party this year, with foreign developed and emerging markets doing better than U.S. shares in 2017. Bond yields refuse to go much higher, despite calls for rising rates for many years. Finding deals is no easy task in this type of market.
While there were bargains galore in early 2009, late 2011 and even early 2016, if you want to find value in these markets, you have to go dumpster diving. What follows are some of the worst-performing asset classes, funds and stocks over the past three years. This list is like the Island of Misfit Toys in some respects, but you have to expect that anything going down big has to come with some baggage.
- Retail. Edward Stacks, the chief executive of Dick’s Sporting Goods, recently lamented that there are a lot of people and companies “in retail and in this industry in panic mode." The reason is Jeff Bezos and his retail-disrupting machine Amazon.com. Dick’s is down more than 40 percent since late 2014. Macy’s (-64.9 percent), Sears (-76.4 percent), Under Armour (-75.0 percent), Abercrombie & Fitch (-66.2 percent) and Finish Line (-69.9 percent) have all also been hammered in recent years.
- Grocery stores. Amazon is also making moves in the grocery space with the purchase of Whole Foods this summer. SuperValu is down almost 70 percent in the past three years, while Sprouts Farmers Market has fallen 35 percent. These companies are down 19 percent and 9 percent, respectively, since Amazon announced the buyout of Whole Foods just a few months ago.
- Movie theaters. Smartphones, the golden age of television, Netflix, and other streaming services have made things difficult for the cinema business, as people have more competition for their eyeballs than ever before. Labor Day weekend marked the worst box office results in almost two decades. AMC Entertainment Holdings and IMAX, down 44 percent and 32 percent over the previous three years, have felt this slowdown in their stock prices.
- Restaurants. Chain restaurants are also feeling some pain in their stock prices, as people aren’t eating out at as many brand-name establishments as they did in the past. Applebee’s announced earlier this year it was planning to close 135 restaurants. Brinker International, the owner of Chili’s, Maggiano’s and Macaroni Grill, is down 40 percent, while Buffalo Wild Wings’ stock has fallen almost 35 percent after a strong run for a number of years. Chipotle has also run into trouble in recent years after customers got sick. The stock has been cut in half over the past three years.
- Energy. A bet on commodities is a bet against innovation, so it’s possible the slump in the price of oil has something to do with the fact that no one knows how electric cars or the prospect for self-driving cars could affect energy consumption and demand in the future. It’s far too early to tell, but energy stocks have taken it on the chin in the meantime. The blue chips Exxon Mobil and Conoco Philips are down 20 percent and 44 percent since the fall of 2014. The Energy Sector SPDR ETF has fallen almost 40 percent over the past three years, while the more concentrated S&P Oil & Gas ETF is down 60 percent.
- Commodities. Oil is’nt the only commodity that has had losses, as a broad basket of real assets has fallen in the past few years. The PowerShares Commodity ETF is down more than 35 percent, while the iShares S&P GSCI Commodity Index ETF has been cut in half over three years.
Securities don’t fall this much without there being major issues. The biggest question when sorting through the bargain bin is how much bad news is priced in to these investments. The fundamentals don’t matter as much as the expectations. The author and investor Michael Mauboussin puts it this way:
The goal of an investment process is unambiguous: to identify gaps between a company’s stock price and its expected value. Expected value, in turn, is the weighted-average value for a distribution of possible outcomes. You calculate it by multiplying the payoff (i.e., stock price) for a given outcome by the probability that the outcome materializes. Perhaps the single greatest error in the investment business is a failure to distinguish between the knowledge of a company’s fundamentals and the expectations implied by the market price.
It’s often not good or bad that matter with investments, but better or worse. When dumpster diving for beaten-down shares, you must be able to understand how far divorced fundamentals have become from investor expectations.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."
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