Temple Bar: 100 years of data proves ‘value’ works
Temple Bar (TMPL ) co-manager Nick Purves looks at US data to demonstrate how low stock market valuations correspond to high long-term returns.
This is the first excerpt from our virtual event with Temple Bar this month. You can also watch the whole one-hour ‘Big Broadcast’.
Temple Bar won Citywire’s ‘Best UK Equity Income Investment Trust’ award this week.
Can’t watch now? Read the transcript
Nick Purves:
Why is it that adopting a so-called value strategy is the sensible thing to do? Quite simply, it’s because there is an enormous amount of historical evidence to show that buying into lowly-valued companies, buying into lowly-valued stock markets results in higher investment returns going forward.
We try and show that on this chart here. This actually looks at the US market. It’s data over 100 years. We don’t need to get too technical about it, but all we need to think about is the fact that on the horizontal axis, you’ve basically got a measure of stock market valuation.
On the vertical axis, you’ve got a measure of subsequent long-term investment return. You can see from this chart just how sharply inverse the correlation is.
Of course, it makes so much sense. Doesn’t matter whether you’re buying stocks or whatever you’re buying. You buy low, you make a lot of money going forward. You buy high, you don’t make money going forward.
