One of my favorite aphorisms is, “When everybody is thinking the same, nobody is really thinking!”
Sometimes I think value investors fall into this kind of a thinking trap, universally accepting a single-minded approach to a stock, an industry, or a market without fully thinking it through. For example, in the early 1980’s, I fully embraced a low P/E approach to investing after becoming a disciple of David Dreman’s approach described in his original book on Contrarian Investing. I regard low P/E approaches as being generally sound in helping to keep you out of trouble. Unfortunately, when used too rigorously, such approaches also keep you out of a lot of higher growth, high ROIC kinds of businesses as well. I can recall at the time of Buffett’s initial investments in Coca Cola (KO) that many low P/E “value” investors thought that Buffett was losing his discipline in paying what seemed like a riotously expensive 13 times for this at the time considered relatively dull business, especially when so many companies at the time were selling at 8 or 9 times earnings.
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