Do Value Investors Add Value?

The methodology discussed in the basics course on value investing must seem like a lot of work to implement. Many of you may be wondering if it is even worth implementing when you have no doubt read the benefits of merely investing in pre-screened (according to P/E, P/BV, etc) value stocks. Dr. George Athanassakos, my mentor and Ben Graham Chair in Value Investing at the Richard Ivey School of Business (University of Western Ontario), has written a paper with two former students, Reyer Barel and Saj Karsan, on the added premium resulted in through the additional valuation work. In this paper they compare a basket of stocks selected merely using the "academic" method of screening for low P/E and low P/BV, and a basket of stocks selected using the rigorous and time intensive process which value investors follow.

Athanassakos et al find that there was a significant value premium attributed to the basket of low P/E and P/BV stocks as compared to a basket of high P/E and P/BV stocks. This has been confirmed by other research as well. What is unique about this paper is that there was an even greater and significant value premium attributed to the basket of stocks that went a step beyond the screening process and used a "valuation technology" to find the truly undervalued of the low P/E and low P/BV basket.

The methodology used in the study is the exact methodology that I learnt under Dr. Athanassakos so not only is the paper an interesting read but it is also a great way to obtain additional insights on valuation from an expert in the field.

The students that worked on this paper with Dr. Athanassakos have a value investing site of their own, Barel Karsan. The site is an inspiration for this one and it offers up very interesting insights into the philosophy and investing in general. While ramping up slowly due to my ongoing search for employment, I hope that one day my own site will live up to the one that inspired it.

Details on the paper are below and the paper can be found HERE.

Athanassakos, G., Barel, R., Karsan, S., 2009, “Do Value Investors Add Value? Searching for and Finding Value: Canadian Evidence 1999-2007”, Working Paper, May 2009.