I write for humans. To write for humans, you need to understand humans. To understand humans, you need to be a human.
Financial Webring Analyzes Valuation Informed Investing (VII)
Martingale offers this interesting comment . . .
**LINK**
If VII is really just the value effect and/or the momentum effect, that's a fairly serious criticism of it, as it could be cheaper in that case simply to follow one of those strategies instead (eg: buy and hold value stocks). It would also imply that you are not getting any free lunch if, as many have argued, there are rational reasons why value and momentum investing have higher returns than the market average. To wit, they are perhaps riskier.
I think Martingale is on to something. His rationale makes sense with respect to the value effect (though I'm not fully understanding how the momentum effect applies).
P/E10 acts like a value-based screen by raising the VII investor's stock allocation when value stocks dominate the S&P 500 (as evidence by lower P/E10 levels ). And conversely, lowers the VII investor's stock allocation when growth stocks dominate the S&P 500 (as evidence by higher P/E10 levels ).
I find this a logical explanation why VII may tend to outperform B&H, as value stocks tend to outperform growth stocks over long periods.
Now the question becomes is whether VII is still an effective value screen as it was in the past. And my answer is, probably not. And the reason is because many companies, including value stocks, have shifted their payout policy away from cash dividends and toward share buybacks. Share buybacks will have the effect of boosting prices more so than when cash dividends were the dominant payout policy.
Hocus didn't gain much
Hocus didn't gain much ground (or any converts)
Ronna Davis