The many hugely successful Value led investors, over and above those cited on these pages, is the best evidence that this approach works. However, to complement this there have been a very large number of quantitative studies of the Value approach for all markets all over the world, over many different time frames. A simple average of all these studies (twenty-five in total) shows an outperformance of 4.9% p.a. accruing to better value baskets of stocks.
We believe that one of the best documents on these studies (because it puts many of them together in one place!) is the Tweedy Browne document ‘What has worked in Investing’.
Other work on the subject has been done by O’Shaughnessy (‘What works on Wall Street’, 2005) who states that “stocks with low price-to-book, low price-to-cash flow, and low price-to-sales ratios dramatically outperform”, by Bernstein and Pezena (see graph, left), and by a simple study of the relative return of the MSCI Value Index which shows 23 years of outperformance of value in the last 34 years and a cumulative outperformance of over 50% (see graphs below). We would also highlight the long-term track record of our own Head of UK Equities, and guardian of the Value approach, which demonstrates an annualized outperformance of 3.5% over the last twenty years.