Book Value in Modern Era
Undoubtedly, in the recent past, the value is under scrutiny. Many researchers have aimed to answer questions like is the Value factor dead? The recent underperformance of the academic value factor (HML) can be tricky to understand, especially when most well-known and influential investors are labelled as “value” investors. A novel research paper by Choi et al. (2021) adds to the literature with its valuable insights. The main topic of the paper is the thorough examination of the B/M ratio in value style investing. Despite the well-known fact of the economy shift towards intangible assets, value investing still seems to be anchored to the B/M ratio that underestimates the true value. Additionally, the authors compare the B/M to other value metrics such as sales to price, gross profit to price, net payouts to shareholders to price and composite metric based on PCA. The correlation between B/M and other value measures is declining throughout the decades, which raises an important question. Are those B/M value investments even value investments?