We are big fans of Research Affiliates, the latest piece from Jason Hsu hits the nail on the head:
Because sentiment is contagious, because timing price corrections is hard, because we all want to brag about our four-bagger stock picks, because irrational markets can outlast our conviction and courage—we look the value gift horse in the mouth and protest, “But there is a risk that the fundamentals continue to deteriorate and this cheap firm gets cheaper.” Or we say, “This company could be the next Google and Apple; at the current 600 PE, it is attractively priced. Let’s hold it longer.”
Its very hard, going in, to tell the difference between “value” and “value trap.” But telling the difference may not be as important as being able to overcome our own behavioral tendencies.
The dread of catching a falling knife and the desire to collect the greatest possible gain are not wrong qualitatively. It is absolutely true that many value stocks eventually go bust and that some growth stocks go on to become the next Google. The fear and greed are just off quantitatively.
Source: Who Is On the Other Side of the Trade?
Related:
Inside the Mind of a Lemming
Strategy Performance Roundup
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