I got bounced this for comment and my immediate thought was why if value investing is doing so well why is one of the rotating images in the the page header what looks to be a shitty little Toyota 86. But that’s just me being bitchy… a more reasoned response follows.
Value investing will never die for a simple reason – monkeys love stories. Humans fall prey to what is know as the narrative fallacy, as such we value stories over data. This is perfectly understandable from an evolutionary perspective. Our ancestors were not capable of whipping up a neat little Powerpoint display with embedded excel charts to show that the big cat with the pointy teeth was bad, so they told stories about it. Those with both a capacity to tell stories and absorb the lessons from them were selected for.
Humans are particularly bad at absorbing data in its raw form – this data needs to be woven together into a narrative to make sense to us. Initially, this seems sensible since the narrative explains the data. All academic papers have a discussion section where the results are put into context and ideas and possible explanations are raised. However, most of the material we are presented in life is not subject to the rigor of an academic paper and this is especially true of the finance industry. In the finance industry the desire os not for truth but rather the selling of truth since a particularly appealing truth may come with a commission or it may be used to defend a particular cognitive bias.
The most compelling example of this is the notion of the Apple fanboy – the Apple cult extends well beyond their products into the investing arena. I have written about this before here and here . This is a perfect example of the narrative fallacy and by extension is an example of why value investing will never die. The majority of investors would prefer to hear a story regarding their stock than be shown a simple chart telling them it was stuffed.
