Sunday, 12 February 2012

It is hard to prove an overly optimistic investor wrong in the short run

To some extent value, like beauty, is in the eye of the beholder; virtually any security may appear to be a bargain to someone. It is hard to prove an overly optimistic investor wrong in the short run since value is not precisely measurable and since stocks can remain overvalued for a long time. Accordingly, the buyer of virtually any security can claim to be a value investor at least for a while.

Ironically, many true value investors fell into disfavor during the late 1980s. As they avoided participating in the fully valued and overvalued securities that the value pretenders claimed to be bargains, many of them temporarily underperformed the results achieved by the value pretenders . The mos t conservative were actually criticized for their "excessive" caution, prudence that proved well founded in 1990.

Even today many of the value pretenders have not been defrocked of their value-investor mantle. There were many articles in financial periodicals chronicling the poor investment results posted by many so-called value investors in 1990. The top of the list, needless to say, was dominated by va lue pretenders

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