Fundamental Value Investors, Characteristics & Performance

I know I’m a little late as this paper (on value investors) came out 2 weeks ago.  Having, read it twice I feel  I can now recommend it. The paper has some pretty significant conclusions and a lot of the data came from the Value Investing Club.  If you have some spare time I also recommend reading the studies in the literature review section of the paper. Click Here To Read A Paper On Fundamental Value Investors (As PDF)

Paper Abstract (Via SSRN)

We examine novel data on the detailed investment decisions of professional value investors. We find evidence that value investors are not easily defined: they exploit traditional tangible asset valuation discrepancies such as buying high book-to-market stocks, but spend more time analyzing intrinsic value, growth measures, and special situation investments. We also test whether fundamental value investors outperform the market in our sample (January 2000 to June 2008). Analyzing buy-and-hold abnormal returns and calendar-time portfolio regressions, we conclude that value investors have stock picking skills.

Paper Introduction (Via SSRN)

This paper adds to the research on the issue of market efficiency. Instead of developing a quantitative trading rule that may or may not be implementable in the real world, or examining the returns of a broad cross-section of money managers who presumably have no skill on average, we analyze 2912 individual investment decisions of professional fundamental value investors, whose job is to discover inefficiently priced assets and determine if the costs of pursuing them (noise-trader risk, liquidity risk, distress risk, macro risks, trading costs, and so forth) are worth the benefits. We answer a simple question: do professional value investors have stock picking skills?

Paper Excerpts (Via SSRN)

“We present evidence that suggests value investors have stock picking skills on both the long and short side”

“Short positions generate even stronger abnormal returns over one-, two-, and three-year horizons.”

“We find that, in our sample, value investors overwhelmingly focus on measures of intrinsic value: they examine valuation models based on discounted free cash flows, use various earnings multiple measures, and often search for growth-at-a-reasonable-price (GARP) investments.”

“None of the investment thesis we analyze make use of statistical models of asset pricing in the academic literature.”

Click Here To Read A Paper On Fundamental Value Investors (As PDF)