A checklist approach to finding bargains with Ben Graham's deep value rules

Friday, May 17 2019 by
A checklist approach to finding bargains with Ben Grahams deep value rules

Is value investing dead?

That’s a question I’ve seen crop up a few times recently (and in recent years) in the financial press on both sides of the Atlantic. The quantitative answer is that value isn’t dead, but rather goes through spells of underperformance. It just seems that the past decade has been a particularly barren spell.

Here’s a chart that casts some light on what the trends have been:


These are the composite performance figures of the different Guru Screen investment styles that we track here at Stockopedia - Bargain, Value, Income, Quality, Growth and Momentum.

You have to be careful about extrapolating too much from this kind of chart. But it’s pretty clear that Growth and Momentum have been very much in favour in recent years. Value… not so much.

Value and Momentum are very different styles of investing, but they’re also very connected. To borrow a turn of phrase from an OSAM paper last year, with Momentum, a stock will move from fair value to slightly overvalued to potentially very overvalued before retracing. With Value, stocks are mispriced and gradually converge on fair value over time. As OSAM say: “Both styles represent a market mistake that can be captured as alpha.”

But over the past decade, it has been Momentum that has profited the most. The market has been gravitating to fast-moving growth stocks, and that’s has left value investors with very little to go at.

This brings me to an interesting value screen that we track - Ben Graham’s Deep Value Checklist. Like a number of the value screens it’s had some strong returns at times over the past five years, but the overall performance has been volatile and underwhelming. What makes it slightly different is that it uses a checklist approach to finding cheap stocks in the market.

A different approach to value investing

Ben Graham is thought of as the father of value investing. He was an architect of some of the founding principles of buying undervalued stocks and waiting for them to recover. He was virtually wiped out in America’s great depression of the 1930s, but the lessons he learned were very profitable later on. A lot of his legacy centres on doing detailed analysis of individual securities to find mispricing.


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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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4 Comments on this Article show/hide all

iwright7 17th May 1 of 4

I see that Buffett and Mungar have acknowledged that traditional Value investing has changed. In a response to a question about buying Amazon at this month's Berkshire meeting Buffett insightfully said... “The decision to buy Amazon’s stock was just as much based on Value investing principles as a decision to buy a statistically cheap stock. Value investing is about estimating and valuing future cash flows, not about how low a price-to-book, or a price-to earnings ratio is for a stock.”

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shurayh 17th May 2 of 4

Shifting goal posts

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Trident 20th May 3 of 4

I wonder if interest rates are the key factor to shift to momentum. For the last ten years we have struggled to come off the bottom of interest rate levels. This coincided with the growth of tech unicorns, who to some extent have funded their growth based on a forward look at market capture, with less regard to other more traditional metrics.

The Tech 'bubble' has run so long with this background of low interest rate, allowing successive new waves of money to come in, that the striking capital gains over time arising have given it a sort of consistency it may not have had experienced in the past..

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iwright7 21st May 4 of 4

In reply to post #477341

Its generally accepted that classic Value investing has struggled over the last 10 years both in the UK and US, so it's tempting to look at what has worked. I came across an interesting Alpha Architect analysis just recently looking at the 10 year performance at the other end of the spectrum i.e. High priced (US) stocks P/Sales >10 and sure enough this group have significantly out-preformed.   Link is here:


If I look at my own portfolio for stocks circa >10x  P/Sales, these are:

Burford Capital (LON:BUR)   9.8x
Ab Dynamics (LON:ABDP)  10.2x
Alpha FX (LON:AFX)              12.9x
Bioventix (LON:BVXP)          22.9x

These are the very shares that have contributed most to my portfolio gain over recent years, so mirror the US findings. 

Alpha Architect conclude: So while we say “Never buy expensive stocks, period“, perhaps this study highlights that there may be times (such as the last 10 years!) when this strategy works.

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