The case for buying value equities

SINGAPORE (July 3): Like most Singaporeans, I love getting a good deal. Why buy something at full price when there is always a sale around the corner? Or, can we find the same thing on Taobao? Oh, honey, is it dinner date night? Let me see where there’s a Fave or Entertainer special, okay. Hey, you get TWO dates with me for the price of one you know…

Even if value-seeking is not a great way to find a life partner, it can be a pretty solid investment strategy. There is some evidence that buying value can result in market-beating performance over the long run.

There are many correlated ways to judge whether a stock is good value and you would have heard of many of them — price/ earnings, price/book, price/sales and so on. Instead of going through them all, I will focus on just one, the CAPE (cyclically adjusted price earnings) ratio, to illustrate how being a value-seeker may, on average, lead to outsize investment returns.

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