Validea Gets Under the Hood: P/E Ratios

By Justin J. Carbonneau (@jjcarbonneau) —  In our book, “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”, we called Benjamin Graham the “Granddaddy of the Gurus” given his track record and influence on other value investors, including Warren Buffett, Mario Gabelli and many others. If Graham was the Granddaddy of the Gurus then I think the Price-to-Earnings ratio (or P/E for short), a ratio utilized by Graham, is probably the Granddaddy of the stock valuation ratios. But it’s important to understand the different ways PE can be calculated and how the various guru strategies utilize […]

Value Investing Performance Varies Depending on Measure

If you gauge value investing by evaluating “a portfolio that buys cheap stocks based on price-to-book ratios,” it hasn’t done too well over the past decade, according to a recent article in The Wall Street Journal written by Wes Gray, CEO and CIO of Alpha Architect, a quantitative asset manager based near Philadelphia.   The article offers the example in which a “generic portfolio of the cheapest stocks (labeled ‘Generic Value (P/B)’ based on price-book ratios earned a compound annual total return of 2.44%, compared with the S&P 500’s total return of 7.10%.” It explains, however, that price-to-book is only one […]

Stocks that Could Appeal to the Value Investor

In a recent article for The Globe and Mail, Validea CEO John Reese discusses the hefty divergence between growth and value stock performance so far this year and offers insights as to the various factors at play. He references the current market’s stretched valuations, noting that “it may be hard to see value” given that the market multiple is above its historical average. “But remember,” he argues, “a big driver of that is the overweighting and outperformance of a handful of big tech stocks.” Reese suggests that investors with a long-term view might consider “strategically shifting, or tilting, some of […]

Value Investors Must Accept Stretches of Underperformance

Even though value investors have seen lackluster performance over the past ten years, panelists at a last month’s Morningstar Investment Conference argue this isn’t an indication that this approach is “dead.” This according to an article in Financial Advisor. AQR’s Ronen Israel commented that a value strategy is good over the long term, but an investor will have to accept periods of underperformance. “Ten years,” he said, “isn’t enough time to judge it.” Jared Watts, a portfolio manager at Morningstar, said that while the value premium exists, it can elude investors, the article says. Both Israel and Watts argued that […]

It Might Be Time to Cool Off on Value Stocks

The value stock-trade is getting crowded, according to an article in this week’s WSJ, with some analysts saying they have been “picked over like never before.” The article cites a research report by strategists at Sanford Bernstein & Co. that says, “Sentiment towards value stocks has reached levels rarely seen before, with analysts upgrading value names faster than they have ever done in the past 30 years.” This, says the article, could lead to a disproportionate downturn for the group in the next market sell-off.   President Trump’s unexpected victory was a boost to value stocks, the article asserts, and […]