Value Investing

Value investing focuses on identifying stocks that trade at low prices relative to their fundamentals, such as earnings, book value, or cash flows. The underlying idea is that markets sometimes misprice companies due to pessimism or short-term challenges. In quant strategies, value is measured using ratios like Price-to-Earnings, Price-to-Book, or Enterprise Value to EBITDA. Stocks with cheaper valuations are ranked higher and included in portfolios. Value works over long horizons but can experience extended periods of underperformance, especially during growth-led markets. This cyclicality requires strong conviction and diversification. Modern quantitative value approaches often refine traditional metrics by adjusting for profitability, leverage, or accounting distortions. This helps avoid so-called “value traps,” where cheap stocks continue to deteriorate. Value investing benefits from mean reversion, where prices eventually move closer to intrinsic worth. However, timing is unpredictable, making systematic and diversified implementation essential. Combining value with other factors such as Quality or Momentum can improve robustness by filtering out weak businesses and capturing improving trends. Value remains a cornerstone of factor investing, offering long-term return potential rooted in economic fundamentals.