Value Investing: Investing for Grown Ups? - By Aswath Damodaran
Found via the Corner of Berkshire
& Fairfax.
Value
investors generally characterize themselves as the grown ups in the investment
world, unswayed by perceptions or momentum, and driven by fundamentals. While
this may be true, at least in the abstract, there are at least three distinct
strands of value investing. The first, passive value investing, is built around
screening for stocks that meet specific characteristics – low multiples of
earnings or book value, high returns on projects and low risk – and can be
traced back to Ben Graham’s books on security analysis. The second, contrarian
investing, requires investing in companies that are down on their luck and in
the market. The third, activist value investing, involves taking large
positions in poorly managed and low valued companies and making money from
turning them around. While value investing looks impressive on paper, the
performance of value investors, as a whole, is no better than that of less
“sensible” investors who chose other investment philosophies and strategies. We
examine explanations for why "active" value investing may not provide
the promised payoffs.
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