Posts Tagged: value

When Measures Become Targets: How Index Investing Changes Indexes

in·dex noun : an indicator, sign, or measure of something. In Vietnam, under French colonial rule, there was a rat problem. To solve the rat infestation, the French offered a bounty on rats, which could be collected by delivering a rat’s tail as proof of murder. Many bounties were paid out, but the rat problem…

Will You Be a Gambler or the House In the Stock Market?

Blackjack odds are as good as you’ll get at most casinos. In most cases, the casino has just a 1% edge versus the gambler. So in a given night, you can go on a great run and win a lot of money playing blackjack. But of course if you played every day, all day, your…

Three Value Investors Meet in a Bar

Bill, Ernie and Sam—three lifelong value investors—met in a bar on November 30th, 2015. Bill was despondent. He’d underperformed the market by -47% over the past 10-years and was questioning his very belief in value. Ernie was happier. He’d done poorly in 2015, but over the last ten years he’d outperformed the market by +19%….

Is Dividend Yield Still A Value Factor for U.S. Stocks?

Value factors rely, for the most part, on some comparison between current price and some fundamental measure of a company’s production like sales, earnings, or cash flow. Dividend yield—dividends paid divided by price—has been in the stable of value factors for a long time. But does a high dividend yield indicate cheapness for a U.S….

Using the Price to Sales Ratio

Price to sales is a very simple valuation ratio. It has the tendency to bias you towards lower margin and higher debt companies, all else equal, but it has still been a very effect measure of cheapness and a fine standalone factor for stock selection. Having explored the history of the ratio, let’s now turn…

Lessons from Market Extremes

We know that markets overdo it at extremes. At the market level, we call these bubbles or manias, panics or crashes. At the stock level, we call them glamour and value. Let’s collect some lessons from the best performing stocks from the two categories where investors have the most extreme (good or bad) expectations for…

A History of The Price-to-Sales Ratio

Price-to-sales is a very simple ratio. Arguably, it is the least nuanced and therefore least manipulated valuation measure. A sale, for the most part, is a sale. Unlike earnings, book value, and other fundamental measures which are sometimes more opinion than fact, sales is a more straightforward number. To be fair, there are still issues like aggressive revenue-recognition and…

Using the Price-to-Book Ratio

Having explored the history of the price-to-book ratio, we can now turn to its usefulness as a stock selection criterion. The data suggests a few important points about the price-to-book ratio: It has worked quite nicely in small-cap It has not worked as well in large-cap stocks Price-to-book delivers the best returns when it is used…

The Original Value Factor: Price-to-Book

Cheaper stocks have outperformed the market – Everyone As I write and think about “factor investing,” I worry about what Aruther Koestler called the “struggle against the deadening cumulative effect of saturation.” Value investing was revolutionary when Graham was writing about it, and was still fairly revolutionary when Fama/French, Lakonishok, and–shameless plug–Jim O’Shaughnessy (among others) were exploring it…

The O’Doul’s of Value Investing

Note: Please also read part two which corrects for a few outliers in the below results Traditional index funds are gaining record market share. The weight of each stock in these index funds is determined by its market capitalization. But bigger is not better. Enter fundamental index. These improved indexes weight stocks by variables “smarter” than…