The Numbers Don't Lie: Finding Real Value in Today's Market

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I'm down in beautiful Rockport, Texas on the South Texas Gulf Coast this week. We've successfully sold our Florida property and are hanging out with my wife's family for a few weeks, maybe longer.

Eventually, we'll head up towards North Carolina to buy a new home. Florida was an excellent twelve-year adventure, but frankly, the state got a little crowded for us.

Plus, our grandkids left the state about a year ago, so we figured, you know what, we're going to follow them and get a little closer. Our plan is to settle somewhere that puts us in the center of all our different family members. In the meantime, I'm thoroughly enjoying the Texas Gulf Coast.

The Power of a Good Story vs. The Reality of Numbers

In addition to the Texas Gulf Coast, I love a good story. The stock market is absolutely full of stories and storytellers.

Financial media and publishing? It's the land of the story. I've sat in countless copy and marketing meetings where people flat out said, "It doesn't matter if your approach works. What matters is if the story is good."

I was on Wall Street for a very long time as well, and that is all that matters there. You might think it's about making money or profit potential.

No.

It's the story. When you look at things like variable annuities, oil and gas deals that used to get done, and option trading schemes—the stories are fantastic.

The results are horrible, but the stories are great.

While we all love a good story, I love profits even more.

In fact, profits pay for stories, not the other way around. The more profits you make, the more time you have to sit on your butt, read, and tell stories.

Increasingly over my career, I've seen the path to profits become quantitative as we've gotten smarter and better with data. You see people like Cliff Asness at AQR, the guys at GMO, Dan Rasmussen at Verdad, Wes Gray and his team at Alpha Architect, and Toby Carlisle at Acquirer's Funds doing amazing things with quantitative approaches to both deep value and momentum-oriented investing.

It's become more and more evident that slavishly following the numbers makes more sense than finding the great stories. Now, it is harder to sell a numbers-based approach—it's not exciting. "Follow the yellow brick road" or "follow the numbers" doesn't have any fancy elements or storytelling.

You're also not going to get rich by next Tuesday, nor is the United States going to collapse three days after that (those are two of the most popular stories right now). Everybody loves to tell them. Everybody loves to buy them. I have to look in the mirror in the morning, so I'm not going to tell you either one of those.

What the Numbers Are Telling Us Right Now

When we look at the numbers right now, they are telling us something significant. The current popular stories fall into two camps:

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