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Value and the Fundamental Analysis Anomaly

The global stock market is often volatile. If your entire investment portfolio lost 10% of its value in a month during a market decline, what would you do?
  1. sell all your investments
  2. sell some
  3. keep all
  4. buy more



Graham and Doddsville and Coin Flipping



     The question presented at the start of the chapter is from a 2015 Wall Street Journal article titled “Putting Robo Advisers to the Test” and the question was attributed to Wealthfront.24 The article discussed the types of questions that automated advisors ask their users to help in determining their investments. Therefore we don’t know how the response affects the aggressiveness of the customer’s portfolio, but I and many of the automated strategies, would be inclined to buy more stocks after a market drop.




Chapter 21 Notes - The Footnotes in the Book are sequential and for this chapter start at #416 and end at #439.
These notes are provided for those that have purchased the book and would like to access the notes and links directly.


1. Eugene Fama and Kenneth R. French, The Cross-section of Expected Stock Returns Journal of Finance, June 1992. https://www.cfapubs.org/doi/pdf/10.2469/faj.v63.n6.4926 or http://faculty.som.yale.edu/zhiwuchen/Investments/Fama-92.pdf Eugene Fama and Kenneth French, The Anatomy of Value and Growth Stock Returns, Financial Analysts Journal November/December 2007
2. Josef Lakonishok, Robert Vishny, and Andrei Shleifer, Contrarian Investment, Extrapolation and Risk, The Journal of Finance, December 1994 http://lsvasset.com/pdf/research-papers/Contrarian-Investment-Extrapolation-and-Risk.pdf
3. “Using Behavioral Finance to Better Understand the Psychology of Investors” Institutional Investor, May 2010 https://www.institutionalinvestor.com/article/b150qd3bzzzl2p/using-behavioral-finance-to-better-understand-the-psychology-of-investors
4. “Characteristics, Covariances, and Average Returns: 1929 to 1997” The Journal of Finance February 2000 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=98678
https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/06davis_fama_french_2000_29-97.pdf
5. See Explaining Stock Returns: A Literature Review. https://www.ifa.com/pdfs/explainingstockreturns.pdf
6. Louis K.C. Chan and Josef, Lakonishok, Value and Growth Investing: Review and Update, Financial Analysts Journal, January/February 2004 http://lsvasset.com/pdf/research-papers/Value_and_Growth_Investing_FINAL.pdf
7. Angela Black, Bin Mao and David McMillan, “The Value Premium and Economic Activity: Long-Run Evidence from the United States.” Journal of Asset Management, December 2009 https://link.springer.com/article/10.1057/jam.2009.15
Cathy Xuying Cao, Chongyang Chen and Vinay Datar “Value Effect and Macroeconomic Risk,” The Journal of Investing, Fall 2017 http://www.iijournals.com/doi/abs/10.3905/joi.2017.26.3.041
8. Eugene Fama, Kenneth French, Value versus Growth: The International Evidence, The Journal of Finance December 1998
9. A. Michael Keppler, The Importance of Dividend Yields in Country Selection, Journal of Portfolio Management, Winter 1991.
10. John R. Chisolm, "Quantitative Applications for Research Analysts," Investing Worldwide II, Association for Investment Management and Research, 1991.
11. Carlo Capaul, Ian Rowley, and William Sharpe, International Value and Growth Stock Returns, Financial Analysts Journal, January/February 1993
12. Lewis A. Sanders, CFA, "The Advantage to Value Investing," Value and Growth Styles in Equity Investing, Association for Investment Management and Research, 1995
13. Sandip Mukherji, Manjeet S. Dhatt, and Yong H. Kim, A Fundamental Analysis of Korean Stock Returns, Financial Analysts Journal, May/June 1997
14. F.M. DeBondt and Richard Thaler, Does the Stock Market Overreact? Werner Journal of Finance, July 1985
15. Michelle Clayman, “In Search of Excellence: The Investor's Viewpoint,” Financial Analysts Journal, May/June 1987
16. Clifford S. Asness, Tobias J. Moskowitz, Lasse Heje Pedersen, Value and Momentum Everywhere, The Journal of Finance June 2013, http://onlinelibrary.wiley.com/doi/10.1111/jofi.12021/abstract
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1363476
https://www.aqr.com/library/journal-articles/value-and-momentum-everywhere
17. Patrick Dennis, Steven B. Perfect, Karl N. Snow, and Kenneth W. Wiles, The Effects of Rebalancing on Size and Book-to-Market Ratio Portfolio Returns, Financial Analysts Journal, May-June 1995
18. Todd Houge and Tim Loughran, “Do Investors Capture the Value Premium?” Financial Management, Summer 2006 https://www3.nd.edu/~tloughra/stylepaper.pdf
19. Larry Swedroe, Swedroe: Value Premium Goes Missing, May 04, 2015 http://www.etf.com/sections/index-investor-corner/swedroe-0?nopaging=1
20. https://alphaarchitect.com/2018/12/11/after-a-lost-decade-will-value-get-its-groove-back-in-2019/
21. https://www.advisorperspectives.com/articles/2018/01/22/uneasy-lies-the-head-that-wears-a-crown-a-conversation-with-jack-bogle
https://larrysiegeldotorg.files.wordpress.com/2017/07/ajo-robots-pdf.pdf
22. Baruch Lev and Anup Srivastava, Explaining the Recent Failure of Value Investing, October 25, 2019 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442539
23. Value Judgments: Viewing the Premium’s Performance Through History’s Lens https://us.dimensional.com/perspectives/value-judgments-viewing-the-premiums-performance-through-historys-lens
24. Liz Moyer, Putting Robo Advisers to the Test, Wall Street Journal, April 24, 2015 http://www.wsj.com/articles/putting-robo-advisers-to-the-test-1429887456



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Table of Contents and Launch Site

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