This chart shows the relative performance of two cheap multiple strategies, one computed with accounting data, the other with ValuAnalysis' corporate economic data.
Even though both outperform, accounting information gives a tepid performance and seems to be prone to occasional breakdowns, as in the recent past.
The cheap multiple strategy based on economic data has a clearer, superior and more stable outperformance pattern, and has added 320 bp of relative performance per annum to the accounting-based strategy.
An Integrated Process Leading to a Coherent Portfolio
Common Sense Stock Selection: Avoiding the Worst Investments
It is often a bad idea to invest in low cash yielding businesses. This is the lesson of the above chart, where the periods of outperformance of a high yielding portfolio do exist (see mid 2006 to mid 2008) but are dwarfed by the downward trend of the low yielding portfolio.
It is always a bad idea to overpay for an asset. This is, in essence, the lesson of the above chart. A portfolio made of the more expensive stocks has never outperformed consistently since 2006.
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