Value Investing: Requiem, Rebirth or Reincarnation?

34 Pages Posted: 12 Feb 2021

See all articles by Bradford Cornell

Bradford Cornell

Anderson Graduate School of Management, UCLA

Aswath Damodaran

New York University - Stern School of Business

Date Written: February 4, 2021

Abstract

For much of the last century, value investors considered themselves to be the winners in the investment world, a result they attributed to their patience, maturity and good sense. That view, at least on the surface, was backed up by evidence that “value” stocks, defined as stocks that trade at low multiples of earnings and book value, earned higher returns than “growth” stocks, defined loosely as companies that trade at high multiples of earnings or book value. It was reinforced by the mythology of great value investors, with Warren Buffett and Charlie Munger taking center stage, as deep thinkers, with profound insights on how markets work. In the last two decades, value investing lost its edge, and a debate has revolved around whether this is a temporary phase, and the result of an unusual macro environment, or a reflection of a permanent change in economies and markets. In this paper, we argue that value investing, at least as practiced today, has become rigid and ritualistic, and that while some of its failures can be attributed to external factors, many can be traced back to practices and rules of thumb that have outlived their usefulness. We argue that if value investing is to be successful in the future, it needs to develop a more dynamic view of value and a greater willingness to live with and invest in the face of uncertainty.

Keywords: Value Investing, Growth Investing, Active Investing

JEL Classification: G11

Suggested Citation

Cornell, Bradford and Damodaran, Aswath, Value Investing: Requiem, Rebirth or Reincarnation? (February 4, 2021). Available at SSRN: https://ssrn.com/abstract=3779481 or http://dx.doi.org/10.2139/ssrn.3779481

Bradford Cornell

Anderson Graduate School of Management, UCLA ( email )

Pasadena, CA 91125
United States
626 833-9978 (Phone)

Aswath Damodaran (Contact Author)

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0340 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.damodaran.com

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