Previous Lecture Complete and continue  

  May 2018 Week 3 - Does Value Investing Still Work?

Does value investing still work?

If value investing no longer works, we should not practice it anymore. If we say value investing still works, let's understand why.

In value investing, there are primarily two considerations: business and price.

Usually a great business will be selling at a more expensive price as compared to a poor business.

Value investing still works today because people are still emotional by nature and due to that, mispricing occurs - which led to the market selling great business at a fair price or poor business selling at an overly terrible price. Both scenarios are an opportunity for value investors.

But we have to admit that it is harder to be a value investor today due to 2 reasons:

  1. Value investing banks on being a contrarian and also being right - which is very hard to do because the consensus are baked into the price.
  2. With the rise of passive investing via exchange traded funds, etc, big capitalization companies are getting more overvalued. Hence, there are lesser undervalued opportunities around that are profitable.

Despite that, value investing still works today.