FOR MORE than a century scores of investors have prospered through "value investing", or buying shares in firms which appear cheap given their "fundamentals". Warren Buffett, an eminently quotable value investor, summarised the approach succinctly: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."Although many value investors, including Mr Buffett, have done well in the long run, they have had a rougher time over the past decade. You can gauge just how pricey a stock is by looking at its price-to-book ratio, which measures how much the market thinks a company is worth relative to the net assets on its balance-sheet. Since 2010 the Russell 1000 value index, which tracks American stocks with low price-to-book ratios and low expected earnings growth, has risen by just 87%, compared with 171% for the market overall. Rather than falling back down to earth as value investors might have predicted, shares in the priciest American companies in 2010 have for the most part kept soaring.
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