Value investing works, so why do value investors underperform? The evidence for activist value investors.
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The Research Paper is here:Do Value Investors Underperform
The author doesn’t know why value investors either under or outperform in my opinion.
The Paper’s Conclusion
Value investing comes in many stripes. First, there are the screeners, who we view as the direct descendants of the Ben Graham school of investing. They look for stocks that trade at low multiples of earnings, book value or revenues, and argue that these stocks can earn excess returns over long periods. It is not clear whether these excess returns are truly abnormal returns, rewards for having a long time horizon or just the appropriate rewards for risk that we have not adequately measured. Second, there are contrarian value investors, who take positions in companies that have done badly in terms of stock prices and/or have acquired reputations as poorly managed or run companies.
They are playing the expectations game, arguing that it is far easier for firms such as these to beat market expectations than firms that are viewed as successful firms. Finally, there are activist investors who take positions in undervalued and/or badly managed companies and by virtue of their holdings are able to force changes in corporate policy or management that unlock this value. What, if anything, ties all of these different strands of value investing together? In all of its forms, the common theme of value investing is that firms that are out of favor with the market, either because of their own performance or because the sector that they are in is in trouble, can be good investments.
What inspired Ron Paul: Mises Lecture on Socialism
http://bastiat.mises.org/2012/04/audio-of-the-mises-lecture-that-inspired-ron-paul/ Amazing audio lecture on why and how Socialism has to fail economically (no ability to use prices and thus allocate resources efficiently)
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