Why Value Investing Works

Investors in value stocks have suffered a long dry spell in recent years, but they can still win the race against growth stocks

John Rekenthaler 3 July, 2018 | 9:51AM
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Tortoise versus hare - investing choices

Sometimes it is useful to consider an investment subject such as value investing from first principles. The academic research backs the idea that buying stocks on the cheap has flourished for as long as the data has existed. Why?

The common explanation is sentiment. What is now unloved will later receive its due. A classic case would be US investment banking giant JPMorgan Chase (JPM): its stock bottomed at $14.96 per share in March 2009 and trades today at $104. Nine years ago, bank stocks were very unpopular. Now they are not. Those who foresaw that change, and who were brave enough to purchase the stock when others feared, have reaped their just rewards.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
JPMorgan Chase & Co163.04 USD1.15Rating

About Author

John Rekenthaler

John Rekenthaler  is vice president of research for Morningstar.

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