Matthew Clinger wrote:
As the book's one-year periods are based on the view from every month of the year, that means the book's more than 40 years worth of data translate to more than 500 1-year periods and more than 400 10-year periods.
Nearly all in a rising market and declining interest rate environment.
Make no mistake Matthew, I think value investing is a perfectly good approach precisely because investors have been rewarded for the higher risk. The approach has certainly worked for Warren Buffett.
But value investing takes more than just running stock screens on a computer. Any industry or company that has done well and suddenly faces problems will often pop up in a value screen. Why? Because the "problem" makes investors scared, that leads to a price decline, and then the stock starts to look cheap. But that's all the more reason to dig into why the stock is cheap.
Imagine if you wanted to buy a ship in 1912 and you suddenly heard the titantic was selling cheap (perhaps because someone actually got a radio message out when it started sinking). Would it be a good deal? Of course not.
It is ironic that you have picked so many financial stocks. That is one industry that has done reasonably well but is facing implementation of Dodd-Frank in 2015. Until Tuesday there was hope that a Romney win would lead to major delays in implementation and possibly even repeal. Those hopes are now dashed and the market reacted predictably yesterday when financial stocks were hit hard. That could be why so many appear to be attractively priced.
I think value investing works because investors get paid for the added risk. That's also why small caps are good to hold as are international stocks. But value investing requires a great deal of hard work and fundamental research on the companies. That's why value investing is usually best left to mutual fund pros. (low cost, no load funds of course.)