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Interesting read on using price-to-book ratio to identify value investments. Patrick O’Shaughnessy remarked that “if everyone tilts towards value, value stocks will stop being value!”

We should be equally excited and worried that factor investing—which I’ll define as buying a basket of stocks based on proven metrics like value and momentum, rather than buying them because of fundamental research—has become the rage. Excited because it has—historically—been a superior way to invest. But worried because as Yogi Berra said of some restaurant’s popularity, “nobody goes there anymore, it’s too crowded.

Thara – What strike me as interesting is that  the proportion of assets that are intangible started to increase significantly around 1999-2002 at the height of Dot-com bubble and the crash that followed.

Source: Investor’s Field Guide

UPDATE: the second post that on investing using price-to-book ratio. Some important points:

It has worked quite nicely in small-cap

It has not worked as well in large-cap stocks

Price-to-book delivers the best returns when it is used to compare each stock against all others, but requires taking large sector bets

Price-to-tangible book may be a slight improvement over regular price-to-book, but not by much

The very cheapest stocks (those with the lowest price-to-book ratios) have performed poorly

Price-to-book should not be used in isolation

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