than a century scores of investors have prospered through “value investing”, or buying shares in firms which appear cheap given their “fundamentals”. Warren Buffett, an eminently quotable value investor, summarised the approach succinctly: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Although many value investors, including Mr Buffett, have done well in the long run, they have had a rougher time over the past decade. You can gauge just how pricey a stock is by looking at its price-to-book ratio, which measures how much the market thinks a company is worth relative to the net assets on its balance-sheet.
. Much to the surprise of many financial commentators, shares in big American firms are actually up on the year. A closer inspection reveals a bifurcation in the market. While shares in fast-growing companies with high price-to-book ratios have risen by around 20% since early January, shares in value firms are down by over 10%.
One obvious explanation for all this is the rise of tech firms, which are difficult to analyse using standard valuation tools. For instance, measures like book value may not accurately capture companies’ intangible assets, such as the strength of their brands or the value of their intellectual property. Moreover, unlike value firms, big tech companies tend to form natural monopolies which protect them from competition, boosting their prospects.
It is possible that investors are simply overvaluing glitzy growth firms. Value stocks have been trampled before. They also severely underperformed growth stocks in the late 1990s and early 2000s, during the dotcom boom. Established firms simply did not hold the same allure as up-and-comers like Yahoo and Cisco, which seemed destined to take over the world, until they didn’t. Tech stocks gyrated wildly earlier this month, suggesting that investors are getting antsy about their high valuations.
How is it even possible stocks are doing good while the companies aren't?
Where there is no free press or no rule of law such as in China accounting fraud tellers being disappeared by CCP police gangsters, only speculation, money laundering and tax avoidance in the name of investment
That depends on foundation of investment,that is rule of law, free press and useful financial accounts. Useful financial information must be relevant and faithfully representation of facts. It relies on corporate governance.
Cannot go on forever. If it does then there is 'no value' in the so called 'value investing.'
Well, people shouldn't really be buying anything if they're already in debt.
pervertedyieldcurve cheapOil
I don’t know!
Does the song on my profile have potential to blow up?
The indication is that the ones in our market that are not even in danger of collapsing are special interest CEOS of 30 million businesses large or small all in the green earth area huh
Rich...
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Source: CNBC - 🏆 12. / 72 Read more »