Virtually Always Be a Value Investor?

Reader Jeff Partlow observed: “As a value investor, Mohanram’s study is somewhat comforting.

Mohanram: Growth stocks on average underperform. Mohanram’s methodology outperforms within this subset.   Net Result: Underperform x Outperform = Relative Mediocrity

Piotroski: Value stocks on average outperform. Piotroski’s methodology outperforms within this subset.  Net Result: Outperform x Outperform = Relative Excellence

Conclusion:  Again, as virtually always:  be a value-oriented investor.”

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A few observations:

1. The two studies use samples of about 20 years, overlapping but not completely. It is plausible that value and growth styles have long cycles (perhaps related to demographics or the economic cycle) and that 20 years is not long enough for strong inference about their long-run relative performance.
2. The studies are gross of trading frictions. It is plausible that shunned value stocks have a higher average trading friction (lower liquidity) than glamorous growth stocks. Net relative performance may be different.
3. Hedgers may find results interesting from the standpoint of funding Piotroski long positions with Mohanram short positions.

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