When something isn't working, you ask existential questions. You test every objection you can.
That's what @CliffordAsness & team have done here re: systematic value investing.
Conclusion: valuation spreads still historic after controlling for common "value is dead" narratives
That's what @CliffordAsness & team have done here re: systematic value investing.
Conclusion: valuation spreads still historic after controlling for common "value is dead" narratives
@CliffordAsness Forgetting all data and backtests, I think we must also consider the basics of equity returns:
1. fundamental company growth
2. multiple expansion/contraction
3. return of capital
Historically value has earned its excess return through #2 and a bit of #3
1. fundamental company growth
2. multiple expansion/contraction
3. return of capital
Historically value has earned its excess return through #2 and a bit of #3
@CliffordAsness #2 only happens if there is real fundamental recovery--the multiple expansion happens in anticipation of real business growth. So it is fair to ask if its different this time and we simply won't see a recovery of value businesses while Microsoft and friends continue to dominate.
@CliffordAsness That outcome (more tech dominance) is certainly priced into equities. The earnings yield spreads are remarkable. That trend can of course continue. But Cliff's control for profitability is interesting here..
While the valuation gap is historic, the profitability gap isn't at all
While the valuation gap is historic, the profitability gap isn't at all
