Why Return Skewness Offers Some Hope for Value Investors

By Jack Forehand, CFA (@practicalquant) It is no secret that value investing strategies have struggled for a long time now. The extended period of underperformance has tested the patience of many value investors and has led some to abandon the approach entirely. Adding to the frustration have been the frequent calls from some well-known value investors that we are at or near the end of this period of underperformance and that value is about to… Read More

Cheap Stock-Hunting Back in Favor

Value stocks have underperformed growth “in all but one year,” but saw a shift last week. This according to a recent article in The Wall Street Journal.  On Monday, September 9th, the article reports that value stocks “had one of their best days relative to growth shares since the financial crisis,” with the trend continuing into Tuesday the 10th. The article suggests that one possible factor is the rebound in Treasury yields, “as investors sold… Read More

Value Investing: Improving the Odds

The yield curve may identify periods where the value premium is more attractive, according to research published by quant firm FactorResearch. The article presents findings from a study using data from the Kenneth French library and the U.S. Federal Reserve showing that, since 1971, the “performance of the Value factor was negative when the yield curve was flattening:” “We observe that the returns of the Value factor were negative when the yield curve was flattening… Read More

Swedroe: Keep Believing in Warren Buffett Despite Berkshire’s Underperformance

The stock market may be “crushing” Berkshire Hathaway, but that doesn’t mean Warren Buffett has lost his touch, according to a recent MarketWatch article by Larry Swedroe, chief research officer at the Buckingham Family of Financial Services. The problem isn’t that Buffett is off his game, writes Swedroe, but rather that “the value premium in U.S. stocks has been negative for more than a decade. Since Buffett’s investment strategy has always been value-oriented, this might… Read More

Asness: Hard to Say When Value Will Win Again

“There is no magic answer,” says AQR’s Cliff Asness when asked when the value strategy will make a comeback, according to a recent article in Financial Review. “A huge part of our job is building a great investment process that will make money over the long term, but a fair amount of our job is sticking to it like grim death during the tougher times,” Asness said in an interview with The Australian Financial Review.… Read More

Value Stocks or Value Traps?

A recent Morningstar  article discusses the risks associated with value stocks, which are now cheaper than ever. The article cites a recent report by BlackRock that issued a “stark” warning: “The market needs to fundamentally reappraise the true value of over-indebted, structurally challenged business models, particularly those that are paying dividends they can’t afford.” So how do investors find real value stocks? The article cites comments from one fund manager, David Keir of TB Saracen… Read More

Is Any Hope for Value Investing Postponed?

The “horrible” performance of value stocks over the past twelve years begs the question of whether the strategy can still work, according to a recent article inThe Wall Street Journal. “The dire years have produced plenty of theories for why value hasn’t worked of late,” the article says, citing the following potential reasons: ·      Markets are more efficient, as “algorithms take emotion out of investing.” ·      The increase in “capital-light companies means traditional value metrics such as… Read More

This Value Investor Sees a Comeback in the Offing

Atlantic Investment Management founder Alexander Roepers thinks things are about to change for value investors, according to a recent article in Institutional Investor. In a report published last month on his firm’s website, Roepers said that the current stock market and macroeconomic conditions signal a “rotation back to value,” and explained, “We believe we’re nearing a possible inflection point in the equity market dynamic.” Roepers attributes the long run of growth outperformance to post-crisis monetary… Read More

Roger Ibbotson on the Price of Popularity

People tend to pay more for brand name consumer products than generics–and stocks are no different, says Yale professor Roger Ibbotson. This according to an article in CFA Institute. “Popular stuff has higher valuations but lower expected returns,” he said during a talk at the CFA Institute Annual Conference, citing the example of how Bayer aspirin attracts a significant consumer base even though it is more expensive than the generic version (that delivers the same… Read More

Bernstein Sees Buy Signals for Value Stocks

For the “quantitative whizzes” at Sanford Bernstein, the chasm that exists between the valuations of the cheapest and most expensive stocks around the world—which has now reached levels “rarely seen in decades of history– is a bullish omen for value stocks.” This according to a recent Bloomberg article. “Add easier financial conditions with stronger economic sentiment in Europe and Asia, and the stage is set for a tentative rebound in the investing strategy over the… Read More