A Short History of Value Investing and its Implications

22 Pages Posted: 20 Feb 2021

See all articles by Bradford Cornell

Bradford Cornell

Anderson Graduate School of Management, UCLA

Date Written: February 19, 2021


This paper argues that what came to be called value investing was an historical accident. It arose in large part because the influential work of Graham and Dodd preceded the development of electronic spreadsheets leading them to propose short-cut estimates of value based on accounting ratios. The demise of the value premium in the last twelve years has led to doubts regarding the efficacy of this approach to value investing and an efforts to adjust the accounting ratios to make them more robust. The argument here is that this effort is misguided. Instead, it must be recognized that value investing amounts to comparing estimates of fundamental value with price and that accounting ratios, however tweaked, are not a reasonable way to estimate value – it requires a full blown DCF analysis. The paper then goes on to address some of the implications of that assertion.

Keywords: value investing, DCF

JEL Classification: G00, G1

Suggested Citation

Cornell, Bradford, A Short History of Value Investing and its Implications (February 19, 2021). Available at SSRN: https://ssrn.com/abstract=3789325 or http://dx.doi.org/10.2139/ssrn.3789325

Bradford Cornell (Contact Author)

Anderson Graduate School of Management, UCLA ( email )

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

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