factor · Value
Value bets that stocks trading cheaply relative to their fundamentals (book value, earnings, cash flow) outperform expensive ones over multi-year horizons. The mechanism is investor over-extrapolation: people pay a premium for recent winners and discount recent losers further than the fundamentals warrant.
Imagine you're shown two companies: one earned $1 per share last year and trades at $10; another earned $1 and trades at $30. The market is telling you the second company will grow earnings faster than the first. Sometimes that's true — sometimes the cheap one is dying for a reason. But statistically, over decades and across countries, the market is too optimistic about the expensive cohort and too pessimistic about the cheap cohort. The difference between expectations and reality is the value premium. It plays out over years, not weeks.
inputs · book-to-market
· earnings yield (trailing twelve months)
· cash-flow yield (trailing twelve months)
ideas · log-transform each ratio so a stock at P/B 0.5 is as far from
the median as one at P/B 4 in log-space
· weighted blend of the three multiples
output · cross-sectional standardised scoreThree value anchors — book-to-market, earnings yield, cash-flow yield — composited and standardised across the universe. Composite weights are calibrated and proprietary. Public: the three multiples we use, the log transform, and the academic anchor (Lakonishok-Shleifer-Vishny 1994, Fama-French 1992).
Book value, EPS, and cash-flow figures come from SEC EDGAR XBRL filings — quarterly cadence, refreshed within hours of 10-Q / 10-K. Market cap is end-of-day. The composite refreshes daily at 06:00 UTC. We z-score within each sector cohort as well as across the full universe — sector-neutral value protects against the factor accidentally picking up an energy / financials tilt during sector rotations.
Value pairs structurally with Quality (Novy-Marx 2013 explicitly argues quality + value works better than either alone) and with Momentum (Asness-Moskowitz-Pedersen 2013's value-and-momentum-everywhere). When all three fire bullish on the same ticker, the QUALITY COMPOUNDER pattern triggers. When value is high but quality is low and accruals are weak, the VALUE TRAP pattern fires bearish — Lakonishok-Shleifer-Vishny 1994's exact warning. Regime amplifier favours value in late-cycle and risk-off.
Value traps: a stock trading cheaply because its business model is permanently broken. We mitigate via the cross-product with Quality and Accruals — VALUE TRAP fires when value is high but quality is low. Second failure: long droughts. Value underperformed for ~12 years (2008-2020) before reverting. The reason isn't a broken factor; it's that growth stocks during ZIRP got priced for perfection. The 2022-2023 reversal showed value rebounded sharply once rates normalised. Position-sizing via the conformal prediction interval helps — we never go all-in on value, we size to the model's confidence.
Every ticker page shows the per-factor decomposition. The Value score is one of thirteen composing the 0–100 the composite score.