There in lies the issue Tech/a, in my view it has been shown to some extent that value outperforms growth over the long-term, but this has only been evidenced in the form of index's.
Logic would suggest that if you pick 'the best' of these value stocks then those stocks will be the ones that drive that outperformance of the index. However i haven't personally seen any evidence that suggests this is the case or what metrics, ratio's etc determine exactly what is 'the best'.
Would be interesting to see the performance of portfolios constructed of 12-18 stocks based on different mechanical filters such as the following:
Portfolio 1: Only stocks with D/E less than 40%, ROE above 10%, market cap must be above $100 mill and must trade at least a 25% discount to sector or avg peer P/E's
Portfolio 2: Only stocks with D/E less than 40%, ROE above 10% and invest in the stocks with the highest Book to Market values
Portfolio 3: D/E less than 40%, EPS and Cashflow/share both positive and within +/- 15% of each other, invest in the top ranking EPS growth shares
Obviously these are all entry criteria and you've had to put exit criteria etc etc around it, but would be interesting to see what achieves the greatest results. As i've said, the research I've seen stated that they found Book to Market to represent value the best (higher it is, better the value).
Your right though tech/a, theres reasonable evidence regarding value index's, not so much in terms of individuals portfolios. Not sure this proves it doesn't work though, just that there is a lack of research (as far as i'm aware of).
Logic would suggest that if you pick 'the best' of these value stocks then those stocks will be the ones that drive that outperformance of the index. However i haven't personally seen any evidence that suggests this is the case or what metrics, ratio's etc determine exactly what is 'the best'.
Would be interesting to see the performance of portfolios constructed of 12-18 stocks based on different mechanical filters such as the following:
Portfolio 1: Only stocks with D/E less than 40%, ROE above 10%, market cap must be above $100 mill and must trade at least a 25% discount to sector or avg peer P/E's
Portfolio 2: Only stocks with D/E less than 40%, ROE above 10% and invest in the stocks with the highest Book to Market values
Portfolio 3: D/E less than 40%, EPS and Cashflow/share both positive and within +/- 15% of each other, invest in the top ranking EPS growth shares
Obviously these are all entry criteria and you've had to put exit criteria etc etc around it, but would be interesting to see what achieves the greatest results. As i've said, the research I've seen stated that they found Book to Market to represent value the best (higher it is, better the value).
Your right though tech/a, theres reasonable evidence regarding value index's, not so much in terms of individuals portfolios. Not sure this proves it doesn't work though, just that there is a lack of research (as far as i'm aware of).