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Brandes Institute On Value vs. Glamour Investing

January 19, 2011

MBA programs around the world are still poisoning their students with Efficient Market Hypothesis (EMH) and Capital Asset Pricing Models (CAPM). Despite overwhelming evidence, the proponents of the elegant but wrong theory just would not give in. To them, market is efficient and one cannot have extra gain without assuming extra risk.

Here is a recent example:

In this interview, Princeton Professor Burton Malkiel, author of “A Random walk Down Wall Street”, tells unsophisticated viewers that even though market is not 100% efficient, it is still unbeatable.

“Telling someone that you cannot beat the market, is like telling a 6 year old Santa Clause does not exist”, he mocked the active money managers who tries to beat the market.

I know Santa Clause are for the kids to believe in, but in the grown up world, we have people like Warren Buffett, Seth Klarman, Bruce Berkowitz… the list goes on – all tracked here at GuruFocus.

Do not buy Malkiel’s book! Do not be poisoned!

Warren Buffett actually had a better idea. He suggested the people belong to the Graham-and-Doddville should set up endowment positions in universities to make sure EMH and CAPM be taught extensively forever so we can disarm the competition before the races even start.

Buffett was joking. He meant for people to turn around and become value investors. They just wouldn’t listen.

As it turns out, value investing camp has its own serious research. Some have been long published but enjoy far less fame.

Marketing is the key; EMH and CAPM camp does a better job there. But it does not mean they are closer to the truth.

Value investing, characterized by buying and holding “value stocks” with low price-to-book, price-to-earnings, or price-to-cash flow, which have the high such ratios, could have yielded higher returns than “glamour strategies”, which buy stocks of the opposite characteristics.

“As early as 1977, academic studies used share price and earnings per share data to classify stocks into the value or glamour categories and to compare historical performance. Through the 1980s, 1990s, and 2000s, additional studies broadened the analysis to include book value and cash flow metrics. “ stated a recent study by Brandes Institute.

The Brandes Institute extended and expanded the research work done by Josef Lakonishok, Andrei Shleifer, and Robert Vishny (collectively, “LSV”) in 1994, and proved that value investing does add value.

Read the report:

Brandes_Value vs Glamour Global Phenomenon 1210

This report originally appeared in Brandes Investment Partners website.

GuruFocus tracks Brandes Investment Partners’ stock portfolio under Charles Brandes.

Rating: 2.5/5 (4 votes)


Alex Morris
Alex Morris - 6 years ago    Report SPAM
As a student in the final year of the Finance program at a fairy prominent university, I can sadly say that my classes/professors have never mentioned Ben Graham or Security Analysis (maybe once in passing gesture), and have tried to convince me that Charlie Munger and Warren Buffett use what is being taught in b-schools in their investment analysis (for those who have heard either talk, they don't). Instead, my education experience has been riddled with references to CAPM, EMH, and beta. I can thankfully say that I picked up Security Analysis and understood the merits of value investing before I ever was presented with academic finance.

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