Investor Alert

New York Markets Open in:

Brett Arends's ROI

Aug. 4, 2020, 10:24 a.m. EDT

The nightmare continues for ‘value’ investors. Here’s why

Traditional value strategies are measuring ‘value’ all wrong, new research says

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Alphabet Inc. Cl C (GOOG)

or Cancel Already have a watchlist? Log In

By Brett Arends, MarketWatch

AMC/courtesy Everett Collection
Jon Hamm as That Despairing Value Investor

It’s the multi-trillion dollar question plaguing the markets and long-term investors everywhere.

Why are so-called “value” funds sucking so badly?

Click to Play

How annuities could protect your retirement income

Annuities can help plan for retirement during a volatile market. Here's what to know before you start looking for one.

‘Value’ investing, which means buying stocks that are cheap in relation to today’s assets, income and dividends, was supposed to be a better, long-term strategy than the alternative, which is investing in more glamorous, but more expensive, so-called “growth” stocks. Back in 1992, when finance professors Eugene Fama and Kenneth French published their seminal research on the subject , they calculated that the cheapest “value” stocks beat the most expensive stocks by a staggering average margin of 1.53% a month.

Since the research was published, U.S. “growth” has beaten “value” — both measured by their equivalent MSCI indexes — by a factor of two to one.


And in the last 13 years, a U.S. “growth” strategy has earned you an average of 12% a year. Value? Try 5%.


The market is littered with the wreckage of “value” investors. So far during this turbulent, traumatic year, MSCI US Growth has earned you a stunning 21% while Value is down 13%.

And this has been despite repeated claims by “value” aficionados that value is due for a comeback. Each light at the end of the long, dark tunnel has turned out to be the headlight of yet another growth train.

What’s going on?

And, more important, is there anything can we do about it?

Baruck Lev and Anup Srivastava, business school professors at New York University and the University of Calgary, think they have an answer.

We’re calculating “value” all wrong, they say. We’re still counting things like land, and factories, and machinery and other tangibles as “assets.” But we’re not counting things like intellectual property, patents, and all the accumulated know-how that a company builds up through years of research and development.

“[U]p to the late 1980s, corporate investments were primarily in tangible (physical) assets (property, plants, equipment, structures, airplanes, etc.) which are capitalized (considered assets) by accounting rules and, therefore, full reflected (net of depreciation) in companies’ book values (equity),” they write.

Page 1 Page 2
This Story has 0 Comments
Be the first to comment
More News In

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.