New study: Value Investors Club picks trounce broader market, gain 33% in year one
Wes Gray of the University of Chicago and Andy Kern of the University of Missouri at Columbia have just published a draft paper in which they analyze the performance of stocks written up on Value Investors Club, an exclusive community of value-oriented investors, run by Joel Greenblatt and John Petry.
Gray and Kern analyze the performance of stocks written up by Club members from 2001-2008. They find that stocks recommended by members gained 33.46%, on average, in their first year -- performance that is vastly superior to that of the broader stock market.
Here is the abstract, as posted by Gray and Kern:
"We examine novel data on the detailed investment decisions of professional value investors. We find evidence that value investors are not easily defined: they exploit traditional tangible asset valuation discrepancies such as buying high book-to-market stocks, but spend more time analyzing intrinsic value, growth measures, and special situation investments. We also test whether fundamental value investors outperform the market in our sample (January 2000 to June 2008). Analyzing buy-and-hold abnormal returns and calendar-time portfolio regressions, we conclude that value investors have stock picking skills."
Disclosure: John Mihaljevic, managing editor of The Manual of Ideas, is a member of Value Investors Club.
Comments
The absolute returns are indeed impressive. What's even more interesting is how well VIC ideas perform after controlling for risk and exposures. Even after controlling for size, value, market, and momentum, VIC picks outperform by 9.39% (for long recommendations) and 33.12% (for short recommendations) in the first year. Amazing.
...but the market is efficient so we should disregard these results and attribute them to luck.
Posted by: Wes Gray | January 7, 2009 11:51 AM
Fama found a way to dismiss the significance of his own study of low price-to-book stocks, which have both outperformed and exhibited below-average volatility. I believe Fama argues that the findings of his and Ken French's study do not contradict the efficient markets hypothesis because low price-to-book stocks have above-average risks that are not captured by volatility (academics' favorite measure of risk). I would therefore be shocked if EMH adherents give your study any credence, despite the study's compelling and statistically significant findings.
Posted by: John Mihaljevic | January 7, 2009 12:06 PM