Abstract
Value investing has been a part of the investment lexicon for the better part of a century, with the diversified systematic value factor (or value effect) studied extensively since at least the 1980s. The authors aim to clarify the many remaining areas of confusion about value investing, focusing on the diversified systematic value strategy, but also exploring how this strategy relates to its more concentrated implementation. They highlight many points about value investing and attempt to prove or disprove each of them, referencing an extensive academic literature and performing simple, yet powerful, tests based on easily accessible, industry-standard public data.
- © 2015 Pageant Media Ltd
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In this issue
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- Article
- Abstract
- FICTION: VALUE INVESTING IS AN IDIOSYNCRATIC SKILL THAT CAN ONLY BE SUCCESSFULLY IMPLEMENTED WITH ACONCENTRATED PORTFOLIO
- FICTION: VALUE IS A PASSIVE STRATEGY BECAUSE IT IS RULES-BASED AND HAS LOW TURNOVER
- FACT: “FUNDAMENTAL INDEXING” IS ONLY SYSTEMATIC VALUE INVESTING
- FACT: PROFITABILITY CAN BE USED TO IMPROVE VALUE INVESTING AND STILL BE CONSISTENT WITH A RISK-BASED EXPLANATION FOR VALUE
- FICTION: VALUE IS “REDUNDANT”
- FACT: VALUE INVESTING IS APPLICABLE TO MORE THAN JUST CHOOSING STOCKS TO OWN OR AVOID
- FACT: VALUE CAN BE MEASURED IN MANY WAYS, AND IS BEST MEASURED BY A COMPOSITE OF VARIABLES
- FACT: BY ITSELF, VALUE IS SURPRISINGLY WEAK AMONG LARGE-CAP STOCKS
- FICTION: VALUE’S EFFICACY IS THE RESULT OF A RISK PREMIUM, NOT A BEHAVIORAL ANOMALY, AND IS THEREFORE IN NO DANGER OF EBBING
- CONCLUSION
- Endnotes
- References
- Info & Metrics
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