[6/27/07] Research from Brandes Institute, updated from a previous report. "Out of favor stocks often are associated with companies experiencing hard times, operating in mature industries, or facing similarly adverse circumstances. Alternatively, fast-growing "glamour" firms frequently function in dynamic industries with a relatively high profile. This start contrast in attributes leads to a natural question: which stocks perform better, value or glamour?"
Research from Brandes Institute found that value stocks outperformace remained substantial, even when the study's samples was adjusted to include Nasdaq stocks and exclude micro caps. For example, annualized five-year returns for the lowest price-to-book (value) stocks in Nasdaq-inclusinve, cap-screened sample averaged 17.9% over the 1968 ti 2006 period, while returns for the highest price-to-book (glamour) stocks average 10.45.
[4/16/07] Way back in 1981, Rolf Banz published a paper in the Journal of Financial Economics demonstrating that over the long-term small caps tended to outperform large caps. However, that was pretty much the last time the small cap effect was seen! Using data from Ken French, the chart below shows vividly that in the pre-1981 the US small cap effect was pronounced, running at the rate of just under 4% p.a. In the period since the study was published small caps have outperformed large caps by only 0.4% p.a. (strangely enough indistinguishable from zero).
[3/30/07] The best type of stock to have owned over time is small-cap value. Here are the results for the 50 years from 1956 to 2005, as calculated by Eugene Fama and Kenneth French:
| Value | Growth | |
| Large caps | 13.3% | 9.7% |
| Small caps | 17.3% | 8.7% |
| Total Stock Market | 10.5% |
[12/3/06] Small cap value trumps large cap growth
[9/21/06] Ibbotson Associates did a study comparing the performance of value stocks, growth stocks, and the S&P 500 between 1968 and 2002. Their results are clear.
Ibbotson Associates did a study comparing the performance of value stocks, growth stocks, and the S&P 500 between 1968 and 2002. Their results are clear.
S&P 500 6.5%Investors focused on value finished with twice as much cash as the growthies, and four times as much as the plain-vanilla indexers. [So I guess the other lesson would be to not invest in the S&P 500.]
Growth 8.0%
Value 11.0%
[8/3/06] If small caps are good, and value is good, then microcaps and deeper value should be better, right?
[7/29/06] Often, you'll hear that there are two types of investors, value and growth. The truth is there isn't much difference.
[1/13/06] What's 70 times better than the next Microsoft? Answer: unknown, boring companies
[1/13/06] The danger of buying large growth
[1/1/06] Small caps had a better year than large caps. Again. And value stocks outperformed growth stocks. Again.
[1/1/06] Not too surprisingly (when you think about it) the top 10 performing stocks of the past 10 years were generally small and obscure. Does that mean you should buy small and obscure stocks? Maybe. But you'd better do your homework. I'd wager many of the small and obscure stocks of ten years ago are now bankrupt.
[11/9/05] There is solid evidence that, as a group, small caps tend to outperform large caps. In his book Investment Fables, Professor Aswath Damodaran pulls together research pertaining to various investing strategies. Using data from Gene Fama and Ken French, Damodaran found that smaller stocks earned higher average annual returns than larger stocks of equivalent risk for the period 1927-2001. When comparing the smallest subset of stocks to the largest, the difference is considerable: 20% vs. 11.74% on a value-weighted basis, with an even greater difference on an equally weighted basis.
[8/4/05] A SmartMoney article on why value beats growth
[7/13/05] This study, by LLakonishok, Shleifer, and Vishny, found that "value stocks" or unloved, low-expectation nobodies outperformed high-priced, high-expectation "glamour stocks". A portfolio favoring high (cheap) E/Ps and low growth outperforms its glamour opposite by 11% per year.
[7/18/05] I wrote about this in January too :)
[5/7/05] Jeremy Siegel writes in the December 2004 Money that if you'd invested $1000 in 1957 in the 100 stocks in the S&P with the highest price-to-earnings ratios, and rebalanced annually, you'd have had $56,700 by 2003; if you'd have bought the 100 stocks with the lowest P/Es, you'd have had $425,700. [The S&P 500 index was created in 1957.]
[7/18/05] Hey I see already wrote about this in January.
[4/29/05] So why not just invest in small cap value stocks?
[4/8/05] Philip Durell, of the Motley Fool Inside Value newsletter, found that value outperformed growth from 12/68 to 12/02 (according to Ibbotson). Considering the source, no big surprise.
What's more surprising is that both value and growth outperformed the S&P 500. So what that tells me is that smaller cap stocks outperformed during that period.
Looking at the Ibbotson paper shows the groups were ranked in the following order: micro-cap value, small-cap value, mid-cap value, large-cap value, large-cap growth, mid-cap growth, small-cap growth, and micro-cap growth.
The next question I have is how they determined whether a stock was a growth or value stock. They split each category into two by their book/price ratio. Growth was considered low b/p and value was considered high b/p.
While I would consider a low p/b a value stock, I wouldn't consider a high p/b a growth stock. So to me this study is not comparing value to growth, it's comparing cheap to expensive. And so it makes sense that cheap wins.
But then one could argue that high p/b stocks are probably high growth stocks (investors have bid up the price because the stocks have been fast growing).
In any case, the ranking of the eight categories was an interesting finding.
[1/28/05] Nirvana and Xanadu: better than Hell
[1/18/05] Rick Munarriz duels Philip Durell in the ongoing growth vs. value debate
[1/14/05] This study found value stocks outperformed glamour stocks.
The term "low growth" kind of threw me. But I'll interpreted that as non-super-high-growth-stocks-that-are-selling-at-ridiculous-valuations.
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