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This is incorrect. All of the 100 years of historical US market data show that the indices tracking “value” companies (of which one component is low P/E) have o
by reducesuffering 6y ago
This is incorrect. All of the 100 years of historical US market data show that the indices tracking “value” companies (of which one component is low P/E) have outperformed “growth” companies over the long term. There are several explanations for this, one that irrational investors periodically pay premiums for “lottery tickets”, like the “next FAANG or Tesla.” But while the explanations aren’t conclusive, the underperformance of growth is.
- jl2718 6y agoI find this interesting because return variance (risk) and mean are supposed to correlate positively in the ‘efficient frontier’ theory that value investing is based on.
- reducesuffering 6y agoThat’s another of the possible explanations. That value companies are usually more debt-ridden and in declining industries and are thus higher risk. Although one way to measure risk is std. deviation (volatility), and while smaller cap stocks are considered “riskier” and they have higher std. deviation, value stocks don’t have meaningfully higher std. deviation.