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Andrew Beer This paper was authored by Andrew Beer, founder of Beachhead Capital Management LLC, New York.

"Of course it’s true until everyone knows it’s true." Famous economist in response to publication of Stocks for the Long Run (1994.)

Everyone likes bargains. Perhaps this explains the irresistible appeal of the Value benchmark factor. The original paper by Eugene Fama and Kenneth French in 1992 propagated the model that investors chase the latest highfliers, while boring "value" stocks are overlooked and underpriced. The key conclusion was that "value" stocks, as defined by low price-to-book ratios, outperform high multiple stocks and that this outperformance tends to be more pronounced during market downturns – a highly valuable property for an investment portfolio.

But what if it’s all wrong? Not that the original paper was wrong, but that the return "anomaly" has been priced away or fundamentally changed? A simple review of risk adjusted returns highlights the issue. In 1963-90, the period studied, the Value factor had a Sharpe ratio of 0.54 – around double that of traditional assets over time. Since its "discovery," the Sharpe ratio declined to 0.17 in 1995-2004 and dropped further to 0.03 in the past decade.(1)

What might this tell us? Most likely, excess re......................

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