It doesn’t matter how many different ways one slices and dices the value investing universe. “One thing remains true: cheap stocks have had an unhappy decade,” declares Grantham Mayo’s John Pease, a member of the firm’s asset allocation team.

Academic theory from Fama and French, as well as long-term investing experience delivered by the likes of Benjamin Graham and Warren Buffett, has contended that those who buy cheap stocks with a margin of safety will be rewarded over the long term. And from 1981 to 2006, a period encompassing the tech stock boom of the 1990s, value stocks outperformed racier growth equities by 2.3 percent annually. Since then, however, they have outperformed in only four of the past 13 years, Pease says.

Two years ago in an extended interview, I had the opportunity to ask GMO founder Jeremy Grantham what was going on with value investing and how it was changing. He acknowledged that certain metrics like price-to-book value were no longer as relevant in an information economy where traditional brick-and-mortar assets were far less valuable than patents and other intellectual property.

In the current paper, Pease offers four possible explanations for why value has suffered:

1. Some researchers argue that “value previously earned above average returns because investors extrapolated poor fundamental growth” too far into the future, and their behavioral bias caught up to them.

2. Others claim the commoditization of “smart beta” caused factor crowding, “eroding the value premium.”

3. Something more fundamental, like “increased concentration,” made growth companies “inherently more competitive,” leaving value companies with structural disadvantages.

4. Finally, there are those who believe “the value premium is alive and well,” and value investors just need to remain patient.

These arguments offer an explanation for almost everybody, Pease writes. For example, if the value premium were a “purely behavioral” phenomenon—cheap stocks simply aren’t sexy—one would “expect it to erode” as investors figured it out.

Factor crowding represents another variant of the same logic, Pease notes. If the value premium was “a rational compensation” for certain risks associated with cheap stocks, a change in market preferences should correspondingly “change the required rates of return” for them.

Others believe something really has changed in our digital economy and 20th century companies in smokestack America face new sources of disruption on numerous fronts. Their asset-heavy financial structures makes it difficult to react to asset-light upstarts.

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