The Enduring Case for Value
Value investing has a record of success that stretches back nearly a century. From Graham and Dodd’s work in the 1930s to the Fama-French research in the 1990s, the data are consistent: systematically buying undervalued securities delivers superior long-term returns.
Yet, despite the evidence, most investors either avoid value strategies or abandon them when they matter most. The barriers are rarely analytical. They are behavioral and structural. Understanding these obstacles explains why value continues to work, because so few can stay the course.
1. Investors Unaware of the Data
Much of the investing public never encounters the long history supporting value. Decades of research have confirmed that low valuation multiples — such as price-to-earnings, price-to-book, and price-to-cash flow- outperform over time.
Instead, investors are fed a steady diet of growth stories, thematic products, and daily price headlines. The long-term power of compounding in value stocks goes largely unseen, and without access to the data, many never realize the opportunity exists.
2. Fear of Inconsistency
Value investing does not produce smooth results. There are long stretches of underperformance, such as the late-1990s dot-com bubble and the 2017–2021 dominance of mega-cap growth stocks.
This irregularity is intolerable for many. Institutions fear relative underperformance; individuals fear missing out. Yet inconsistency is central to why value works. If the strategy delivered constant outperformance, the excess returns would be arbitraged away. The discomfort of volatility is the price of admission.
3. Extrapolating the Past
Investors often project the past into the future. Winners are assumed to keep winning, and laggards are expected to remain impaired.
This thinking runs counter to mean reversion, the very principle on which value thrives. Stocks priced for permanent failure often recover once conditions normalize. Overhyped winners priced for perfection frequently disappoint. Recognizing where markets have extrapolated too far is where disciplined investors find opportunity.
4. Good Companies ≠ Good Investments
A strong business does not always equate to a strong stock. Cisco in 2000, Coca-Cola in 1998, and several recent mega-cap names illustrate the danger. The companies were excellent, but investors paid valuations so high that future returns were weak.
At Hoover Capital, we distinguish between company quality and investment quality. A mediocre business at the right price can outperform an outstanding business at the wrong price. Price matters more than narrative.
5. Momentum and Immediate Gratification
Modern markets amplify impatience. News cycles, social trading, and constant updates encourage chasing what is already working. Momentum itself is a valid factor, but pursued without discipline, it leads to buying high and selling low.
Value requires patience, buying what others are discarding and waiting years for recognition. In a short-term world, this delayed gratification is rare. That rarity sustains the value premium.
Why Value Still Works
The barriers to value, including a lack of awareness, fear of inconsistency, extrapolation bias, confusion between company and investment quality, and impatience, ensure that most investors cannot sustain their commitment. These obstacles are precisely why value investing continues to deliver.
At Hoover Capital, we welcome the discomfort. Our contrarian process targets investments that are overlooked and mispriced. We understand that markets test conviction before rewarding it, and that discipline is the true edge.
Value investing has never been easy, but for those willing to endure its challenges, it has been profoundly rewarding. That is where the real opportunity lies.