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Why isn’t value investing more popular?

From GuruFocus

Even though there are many extremely successful value investors, few money managers and individual investors choose to follow the value investing strategy. They don’t follow it because it doesn’t work all the time, meaning that investment returns are not positive every day, every quarter, and every year. Because it is a long-term strategy, investors do not have the discipline to stick with it even though over long periods of time, it works wonderfully. Instead, they keep searching for other strategies that work all time, or at least appear to work all the time.

Today, Wall Street is dominated with tech-savvy investors, who instead of putting in the effort to analyze individual companies based on their valuations, the quality of their management, and the strength of their competitors, use complex formulas and super-fast computers to take advantage of various market inefficiencies. Because these inefficiencies tend to be small, many times these investors use a significant amount of leverage to magnify their investment results. The positive aspect of their strategy is that it seems to work most of the time, which is why it gained popularity. However, during the times that it doesn’t work, even if it is only less than one percent of the time, it completely collapses. It is equivalent to playing Russian roulette with a 100-bullet revolver with only one bullet loaded. Every time you pull the trigger and it doesn’t kill you, you make lots of money. However, the one time that you are unlucky and get the bullet, you are dead. With these kinds of odds, would you want to play this game? I wouldn’t, but this is exactly how some of the “brightest” minds on Wall Street manage money. In his book, The Quants, Scott Patterson of the Wall Street Journal, argues that a swashbuckling breed of mathematicians and computer scientists nearly destroyed Wall Street and are behind the financial meltdown.


Recent counters that had a darn good run is HL Asia and Z-Obee. Both are featured in NextInsight. And both are based on value investing, which is why I’m giving this philosophy a higher credit. The problem always is how are you going to do the valuation? In order to do ratio analysis, how are you going to make them comparable given different form of accounting and financing etc.

Another blogger I really like is musicwhiz, whose ability to analyze the counter in detail, is just awesome.

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