I understand the appeal of using approaches that rely on buying “cheap stocks” as someone who likes a more quantitative approach to investing,
At the same time, I have always felt that many people have the misconception that value investing is about buying cheap P/E, cheap P/B or high dividend stocks.
This is completely wrong!
As someone who likes a more quantitative approach to investing, I understand the appeal of looking at “hard numbers”.
However, value investing is really about buying companies at a discount to intrinsic value, and valuation is only one part of the equation when assessing whether a company is cheap to buy.
Buying “cheap” does not mean cheap valuationValuation ratios are highly useful, but can be very misleading.
A company with a low P/E ratio could have a large one-off earnings. Other scenarios could be that its earnings are at a cyclical high, and are unsustainable.
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