Value Investing

I also read a few papers this week on Value Investing. Value investors believe alot of similar things that momentum investors and traders believe - that the markets do not adjust to the right prices very quickly. This is generally because information isn't instantaneously understood. Unless you think humans are headed towards some kind on intel-fast mind, I would argue that this won't be changing anytime soon.

Value Investing tends to look for high book-to-market stocks that have been beaten down (although dividends, cash flow, intangibles, and low P/E are also part of the equation). A Value investor argues that the share beat down is wrong (overreaction, or some other reason). There does seem to be some evidence that those who are good at this game tend to outperform (Buffett comes to mind).

Learning this game is one reason I'm in the Applied Security Analysis Program (ASAP) at the University of Wisconsin. I want to be able to create an investment style and fun that takes the best of the ideas and throws them into one. Like a good football team, most everything is stolen. How often do you actually see a new football play? 90% of them all have been run, and the good ones plagiarized. The 10% is also very important for success, but putting it all together is the key, and it takes alot of work.