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Modest Proposal – Value is Dead, Long Live Value - [Invest Like the Best, EP.95]
Invest Like the Best with Patrick O'Shaughnessy
Is Over Reaction a Source of Opportunity in Value Investing?
Value factor investing works due to people overreacting to recent bad results in earnings and cash flows, causing underpriced assets that eventually lead to multiple expansion once fundamentals stabilize. Over reaction is seen as a source of opportunity in the market due to human behavior anomalies persisting despite other market anomalies being exploited. Opportunities lie in exploiting over reactions, particularly in volatile sectors where earnings misses lead to significant price drops. However, it is noted that systematic outperformance in today's efficient market requires identifying specific dislocations or narratives, making active management challenging without such catalysts.
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