Value investing doesn't even beat the S&P 500
Study by Research Affiliates shows that most value investors don't earn the value premium -- in fact they don't even beat large cap on a time-weighted return basis. Why is that? It turns out that value investors are also market timers! Beware being a value investor unless you can stick with it like forever and not chicken out when you are getting mauled by tracking error. You've got to be a stick-by-your-guns contrarian to make value investing work over the very long run (short term investors need not apply).
Examining the entire available history of mutual fund performance, Hsu, Myers, and Whitby (2014) find that the average value investor didn’t earn anywhere near the reported value premium. In fact, he or she underperformed the S&P 500 meaningfully, even before taking fees into account. How is this possible?
Value fund investors typically do not hold their investments. Instead, they chase trends, allocating away from value funds after a period of underperformance and towards them after a period of outperformance. In other words, average value investors do not adhere to the contrarian allocation as one would expect; they are actually trend chasing.
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