Is There Value to Value (Investing)?

Original source: SimoleonSense.com .

Abstract(via Kevin C. Kaufhold)

The Value style of investing is explored in this paper. The analysis is segmented into four parts: historical considerations are briefly noted, and then an extensive review is conducted of the literature on various price to value indicators. Next, the reasons for value outperformance are examined. The paper concludes with a review of performance measures of value-oriented investments.

Conclusion (via Kevin C. Kaufhold)

The weight of the evidence highly suggests that value-oriented factors do provide superior results as measured on a statistical, back-testing basis. The reasons for the outperformance are less clear, but revolve around two main and somewhat competing theories: first, the market model is in need of further refinements; and second, behavioral factors may be responsible for persisting valuation situations.
Whether value styled investors and managers can consistently capture and provide superior returns in a real world setting is very much an open question, however. If any investing strategy can outperform a relevant benchmark index on a risk-adjusted, posttax, and post-expense basis, it may be the value style. Considering that value benchmark indexes have outperformed growth indexes over long time frames and that high expense ratios virtually guarantee underperformance, perhaps the most prudent and practical course of action to take would be to simply invest in a value-oriented index fund. Active management is always a possibility, but the success of such a strategy would largely depend upon keeping expense ratios very low while simultaneously providing superior investment management abilities and skills.

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