The Case for Value Stocks

By Jack Forehand, CFA (@practicalquant) —  Value stocks have lost their mojo. After an extended period from 2000 to 2007 where they outperformed growth stocks by a wide margin, they are now in one of their longest periods of underperformance ever. The below chart shows the iShares Core US Growth ETF against the iShares Core US Value ETF from 2007 to the present. As you can see, growth has outperformed value by almost 3 to… Read More

The Realities of Mean Reversion

By Jack Forehand, CFA (@practicalquant)  “Importantly, reversion to the mean in the investment business extends well beyond the results for mutual funds. It applies to classifications within the market (small capitalization versus large capitalization, or value versus growth), across asset classes (bonds versus stocks) and spans geographic boundaries (U.S. versus non-U.S.). There are few corners of the investment business where reversion to the mean does not hold sway.” – Michael Mauboussin Mean reversion is one of… Read More

Value Stock Outperformance Could be Temporary

The recent outperformance of value shares over growth, according to an article in The Wall Street Journal, will be a short-lived trend. The rise in bank stocks and dip in tech stocks led many to believe that the tax reform package was rewarding the Wall Street elite while punishing Silicon Valley investors. However, the article argues, “Under the surface there are two much deeper changes under way, and the important question is whether the tax… Read More

Validea Gets Under the Hood: P/E Ratios

By Justin J. Carbonneau (@jjcarbonneau) —  In our book, “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”, we called Benjamin Graham the “Granddaddy of the Gurus” given his track record and influence on other value investors, including Warren Buffett, Mario Gabelli and many others. If Graham was the Granddaddy of the Gurus then I think the Price-to-Earnings ratio (or P/E for short), a ratio utilized by Graham, is probably the… Read More

Value Investing Performance Varies Depending on Measure

If you gauge value investing by evaluating “a portfolio that buys cheap stocks based on price-to-book ratios,” it hasn’t done too well over the past decade, according to a recent article in The Wall Street Journal written by Wes Gray, CEO and CIO of Alpha Architect, a quantitative asset manager based near Philadelphia.   The article offers the example in which a “generic portfolio of the cheapest stocks (labeled ‘Generic Value (P/B)’ based on price-book ratios… Read More

Stocks that Could Appeal to the Value Investor

In a recent article for The Globe and Mail, Validea CEO John Reese discusses the hefty divergence between growth and value stock performance so far this year and offers insights as to the various factors at play. He references the current market’s stretched valuations, noting that “it may be hard to see value” given that the market multiple is above its historical average. “But remember,” he argues, “a big driver of that is the overweighting… Read More

Value Investors Must Accept Stretches of Underperformance

Even though value investors have seen lackluster performance over the past ten years, panelists at a last month’s Morningstar Investment Conference argue this isn’t an indication that this approach is “dead.” This according to an article in Financial Advisor. AQR’s Ronen Israel commented that a value strategy is good over the long term, but an investor will have to accept periods of underperformance. “Ten years,” he said, “isn’t enough time to judge it.” Jared Watts,… Read More

It Might Be Time to Cool Off on Value Stocks

The value stock-trade is getting crowded, according to an article in this week’s WSJ, with some analysts saying they have been “picked over like never before.” The article cites a research report by strategists at Sanford Bernstein & Co. that says, “Sentiment towards value stocks has reached levels rarely seen before, with analysts upgrading value names faster than they have ever done in the past 30 years.” This, says the article, could lead to a… Read More

Value Stock Picks in an Elevated Market

Although today’s market is a bit pricey, it still offers some values if you shop around and properly evaluate a company’s operations and financials. This according to Validea CEO in a recent article for TheStreet. The article underscores the investment mantra of Warren Buffett–“It is far better to buy a wonderful business at a fair price than a fair business at a wonderful price” – as well as the strategy of the late, great Benjamin… Read More

Contrarian Picks Based on David Dreman’s Philosophy

The famous investor David Dreman, who Kiplinger once referred to as the “consummate contrarian”, follows a strategy which capitalizes on the emotional, knee-jerk reactions that make unpopular stocks underpriced, writes Validea CEO John Reese in TheStreet. This is no coincidence, given Dreman’s knowledge and experience in the area of behavioral finance. Dreman identifies such undervalued companies, Reese explains, by comparing their share prices to four different financial variables that gauge the strength of the underlying… Read More