Tag Archives: price-to-earnings

Explaining the Value Premium

Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.

Value has persistently outperformed over the long-term.  Why is that?

In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity.  Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price to earnings, price to book, and dividend yield. Thus growth stocks trade at higher prices relative to various fundamental measures of their value because (at least in theory) the market is pricing in the potential for future earnings growth. Over relatively long periods of time, each of these investing classes can and do outperform the other.  For example, growth investing dominated the 1990s while value investing has outperformed since. But value wins over the long haul. Continue reading

A Thoughtful Outlook for 2013

In general, I ignore the spate of market predictions that experts issue at the start of each year.  There are exceptions, and after reading Jason Hsu’s outlook for this year, I am pleased to recommend it to readers.  Dr. Hsu is the Chief Investment Officer at global money management firm, Research Affiliates.  I found his article both insightful and appropriately skeptical of all forecasts.  How can you not appreciate a money manager who starts his prediction for the year ahead with John Galbraith’s quip that “the only function of economic forecasting is to make astrology look respectable”?

I am going to mention a few of the elements of Hsu’s outlooks and add some thoughts.  Hsu first examines the drivers for bonds and then equities.  I will follow this structure. Continue reading