Avoiding Financially Distressed Companies Using a Simple Value Investing Heuristic
Otuteye, E., & Siddiquee, M. (2015). Avoiding Financially Distressed Companies Using a Value Investing Heuristic. Journal of Investing, 24(3), pp. 73-99
Posted: 30 Mar 2014 Last revised: 17 Oct 2017
Date Written: March 28, 2014
In a previous presentation we showed how it is possible to use a set of financial ratios to create a value portfolio that is capable of outperforming the aggregate market. We labeled that method the O-S heuristic approach to value investing. This paper presents evidence that not only is the O-S heuristic capable of selecting desirable assets for inclusion in the portfolio, it also avoids 100% of companies that either become insolvent or experience some form of financial distress.
Keywords: Value Investing, Value Traps, Margin of Safety, Bankruptcy
Suggested Citation: Suggested Citation