Principles and theory used in value investing.

Academic research investigated the connection between company financial characteristics and stock market investment performance. Researchers postulated that companies with excellent financial characteristics would make the most successful stock market investments. In fact, the researchers found that the least excellent companies made the most successful investments. These findings led to the development of the “value” school of investing. Although both the academic and investment communities continue to debate the factors driving the value effect, value investing may play an important role in most investor’s portfolios.

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This article originally appeared in Investment Quarterly for the first quarter of 1998.