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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (51220)	12/14/2013 2:28:16 PM
From: Spekulatius	Respond to of 78702

Interesting study regarding reversion to the mean, but also growth (buying great companies) versus buying crummy companies (low CFROI in this article). The article suggests that buying great companies (first quintile), as well as crummy companies (4th and 5th quintile) can produce high returns, but the 5th quintile has the largest variation in outcome (risk), so probably buying the companies in the 4th quintile appears to be better. The returns for the 2nd quintile were the worst, which is quite of interesting. Also noted (but not really addressed,imo) is the survivorship bias, which would probably take the real return for the 5th quintile down further (as those companies go out of business more likely, I suspect). An important think to note is, that this article does not look at valuation per say, which is what this board is all about. While the companies is the high quintiles have probably lower valuation multiples than those is the lower ones, they may not necessarily be mispriced, relative to their poorer business outlook, so article is more comparing turnaround investing versus growth than value versus growth. There are other findings, like ROI beats growth as a predictor. Of course this id all mute if you can predict changes in ROI (the future so to speak). doc.research-and-analytics.csfb.com