The Superinvestors of Graham-and-Doddsville (1984)
I belong to a fair number of value investing forums and made money off of the strategy for a while. Here&#x27;s why I think this no longer works in the traditional sense and what works now:<p>The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it&#x27;s probably a value trap.<p>So where can you find value? Where the above things are not present. Quants work for big firms. Goldman Sachs can only make a dent if it does massive deals. As Buffett said, he could still do great things with $1mm AUM, but with billions, he can&#x27;t make small plays anymore. So individuals can only find value where the big players (GC, ETFs) don&#x27;t play. This means micro caps, foreign stocks (Japan comes to mind as a hot spot for value). The problem is two fold:<p>1. The above-mentioned pool is very small.<p>2. It&#x27;s riskier.<p>So you have to do a <i>ton</i> of research to avoid the value trap mistake, often with way less information since these stocks aren&#x27;t subject to the same 10K&#x2F;10Q auditing that American stocks are.<p>Now you&#x27;ve researched something so much you&#x27;re biased to believe it working since you&#x27;ve sunk so much time into it. And because you&#x27;ve sunk so much time you don&#x27;t have the time to research the rest of the investment pool, so combined you see these value investors who are very concentrated in some highly-convicted bets. And thus, the ones that win, win big and can claim there is always value to be found even in a market dominated by momentum investing. The rest lose to value traps, and lose big.<p>So what&#x27;s the takeaway? It still works. The low numbers in terms of P&#x2F;E and P&#x2F;B that are in books like <i>The Intelligent Investor</i> don&#x27;t work. You have to relax those constraints quite a bit. And you can&#x27;t be looking in the S&amp;P 500.<p>I used to think I could do this as a hobby. And I did. But I think I got lucky based on the amount of time and research I did. To be demonstratively good at value investing time and time again requires robotic levels of dispassionate patience, and research that demands a full time job.