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Perspective
The Long Run Is Lying to You
March 4, 2021
Everyone knows the value strategy has been a grave disappointment out-of-sample since, say, 1990, based on realized returns. However, odd as it might sound, the realized average return on a strategy is not necessarily the best estimate of its true long-term expected return. In fact, the right estimate of the true long-term expected return of the value strategy is considerably higher than many might think if they were to just look at simple past returns – especially right now. Why? I explain it in this note (spoiler: it has to do with changes in valuation).
Perspective
A Gut Punch
December 22, 2020
Sure, the last nearly three years have hurt, but at least the explanation was straightforward. A core part of our process, value, suffered. So when value rebounds, we will too, right? Well, not necessarily. To be clear, if value makes a prolonged major recovery, we certainly believe we will as well, but over short periods that doesn’t have to happen. Unfortunately, this is what we have experienced since the end of October. Regardless, it does not change my view one drop that going forward multi-factor investing is a darn good bet in a world that needs some darn good bets.
Perspective
Is (Systematic) Value Investing Dead?
May 8, 2020
When value has underperformed for so long, it’s natural and proper that people wonder if it’s ever going to work again. To test the popular explanations for why value investing is “broken,” Cliff tweaks the value factor’s construction to remove the stocks that best fit these stories. He finds no “this time is different” explanation holds water, affirming our belief that the medium-term odds are rather dramatically on value’s side.
Perspective
The Valuesburg Address
February 27, 2020
One score and eight years ago Fama and French brought forth on this world, a new factor, conceived in either risk or behavioral effects, and dedicated to the proposition that all portfolios are not created equal. Now we are engaged in a great drawdown, testing whether investors in that factor, or any factor so conceived and so dedicated, can long endure…
Perspective
Never Has a Venial Sin Been Punished This Quickly and Violently!
February 19, 2020
Three months ago in “It’s Time for a Venial Value-Timing Sin,” Cliff demonstrated the value factor’s historic cheapness, suggesting it’s time to “sin a little” and modestly overweight value. While portfolio tilts are seldom promptly rewarded, it’s also rare they are instantly punished. In this piece, Cliff shows how 2020 has been the exception to the rule, as value has begun this year with its worst loss in its decade-long drawdown.
Perspective
It’s Time for a Venial Value-Timing Sin
November 7, 2019
Cliff discusses how to measure whether a factor, in this case the value factor, is itself rich or cheap versus history. The answer, regardless of the approach taken in measuring cheapness, is that value is currently quite cheap compared to history.
Working Paper
How Do Factor Premia Vary Over Time? A Century of Evidence
July 2, 2019
We examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes. The results offer support for time-varying risk premia models with important implications for theory seeking to explain the sources of factor returns.
Journal Article
Deep Value
December 4, 2017
We examine the efficacy of a hypothetical deep value strategy—where the valuation spread between cheap and expensive securities is wide relative to its history—across global asset classes and also provide new evidence on competing theories for the value premium.
Perspective
Going Deep on Contrarian Factor Timing
December 4, 2017
We studied all the interesting things that happen when some stocks, or other assets, get deeply cheap while others get deeply expensive, and learn more about value investing and how timing works when increasing breadth of comparisons.
Journal Article
Contrarian Factor Timing is Deceptively Difficult
March 7, 2017
The increasing popularity of factor investing has led to valuation concerns among some contrarian-minded investors and fears of imminent mean-reversion and underperformance.