Value Ideas Blog
Two upcoming presentations on Value investing and some useful links

After the success of our last presentation one year ago we are happy to announce two upcoming presentations about value Investing. The first will be held by us at the 23.02.2015 19.30 on the EBS Campus in Oestrich-Winkel in room N3 the presentation will be presented in german and will deal with an introduction to Value Investing and two case studies. The Case studies will be interactive and contain a long pitch which we have not yet presented on the blog. The second will take place on Monday the 09.03.2015 18.30 in N3 and is presented by Frank Fischer of Shareholder Value Management AG eg. Frankfurter Aktienfonds für Stiftungen and is held in english. The topic of this presentation is Value Investing in Crises. You are kindly invited two both presentations but as place is scarce you have to quickly fill out the form below with you name and the number of guest first so that we can plan. We would be glad to host many visitors.

  ebs   Please enter your name into this form to join: http://goo.gl/forms/RyiZmAbqnk Thanks. read more
 
Higher Frequencies: Chicago Board of Trade Futures Market

Avoiding the buzz: Low liquidity beats the market

  One aspect or explanation why Value works is the low trading volume which is often typical for companies in which we invest. A new paper by Roger Ibbotson and Thomas Idzorek, Roger Ibbotson is a partner at Zebra Capital Management and finance professor at Yale and Tom Idzorek is head of investment methodology and economic research at Morningstar, in the Journal of Portfolio Management which analysed 40 years of stock returns by putting them into a perspective to the average trading volume of the last year.  The Paper finds, stocks in the least popular quartile outperformed those in the most popular segment by seven percent. In their paper “Dimensions of Popularity,” Ibbotson and Idzorek identify the most common market premiums and anomalies, such as:
  • Small cap—Smaller capitalization stocks outperform larger capitalization stocks
  • Valuation—Value companies beat growth companies
  • Liquidity—Less liquid stocks beat those with more liquidity
  • Momentum—Stocks trending up will continue to trend up
Because the risk-return framework does not explain all these premiums and anomalies seen in the market, the researchers propose the unifying “theory of popularity.” The authors explain that the most common market premiums and anomalies are associated with a stock’s popularity or unpopularity. For example, if investors “vote with their dollars,” small cap companies have gotten fewer votes. Value companies commonly have something wrong with them, which makes them unpopular.   If an asset has characteristics that investors really dislike, such as low liquidity, little name recognition, or high volatility, its price will be lower and therefore its expected future returns will be higher, all other things being equal. According to the theory of popularity, if an investor were to rank stocks by popularity, he or she could buy a basket of unpopular stocks and systematically rebalance as the stocks become more popular by buying a new portfolio of relatively less popular stocks. As some of the stocks in the portfolio become more popular over time, they become more valuable and the investor will see appreciation. This cycle happens normally in Deep Value situations where trends tend to revert to the mean.  
“Risk has become a catch-all for all of the attributes that investors do not like, but riskiness does not explain all the anomalies we see in the market. Value premiums are a perfect example. Stocks with low market-to-book ratios or low price-earnings ratios are not necessarily more volatile or less liquid, but we know that over time value stocks beat growth stocks. We need a new model for explaining investment performance that goes beyond risk and return. Popularity may be a better lens through which to view investment behavior,” Ibbotson said. “Many of the well-known market premiums are associated with unpopular stocks. Unpopular stocks tend to be smaller, less liquid, and perceived as lacking growth potential. These stocks, with their low relative prices, may offer investors better future performance as they move along the spectrum toward popularity.”
  Have a good week.