Modern Value

You might have heard that value, quant value to be specific, has not performed well over the last decade. Consider the Figure below. It shows the returns associated with investing $1 in four quant strategies, big value, big growth, small value and small growth. The facts are straightforward. Big growth has outperformed big value, but the value premium is alive and well amongst small stocks. In general, when one looks at value versus growth, growth has outperformed greatly. Does this mean value investing is dead? Absolutely not. Journalists and observers confuse quant value with value investing Modern value is about value investing: The process by which we estimate the fundamental value of the business operations of the firm in the context of the competitive position the company has in the industry and markets in which it operates. Notice that I wrote process. Value investing is indeed structured and systematic, and it needs to be because it is granular, focused on the specifics of the firm under consideration. Thus, it is easy to get lost in the details of the firm. The process helps you assess the importance of each bit of information and integrate them coherently in the analysis that combines tools from accounting, valuation and the economics of strategic behavior. around the appropriate aspects of the business?