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June 18, 2005 7:27 AM   Subscribe

Anybody find value with FallenAngelStocks, ValueLine and their ilk for equity research?

I'm an amateur fundamentalist and don't believe in market timing or technical analysis. Investing in value funds has been good, but not outstanding with the choices I've made. Any good value funds out there?
posted by inchoate to Work & Money (3 answers total)
No personal experience here, but I remember reading an article in Money magazine a few years ago about Value Line. The gist of it was, how can their stock recommendations perform so well, yet their mutual funds perform so poorly? If their funds followed the recomendations they would have done much better.
posted by pmurray63 at 9:38 AM on June 18, 2005

To echo pmurray, Valueline's equity picks (remarkably) have beaten the index with consistency for a very long time.

Some or much of this could be attributed to the Low P/E Effect or the Small Firm Effect, both of which are not sufficiently explained by Modern Portfolio Theory.

Depending on how much money you're playing with, buying individual equities can be more cost effective than buying mutual funds. (You probably already knew that.)

Last, Fidelity Low Priced Stock is a category killer, and Joel Tillinghast is a genius. Dunno whether the fund is open this week. I doubt that even FMR does, given the frequent closures and reopenings.
posted by Kwantsar at 10:14 AM on June 18, 2005

The Value Line effect has been studied in finance literature since the mid-70s. As late the mid-80s, they identified some information when companies change from some other rank to rank 1 - but there's no significant excess return by 1 day after its release. Others have found underperformance for rank-1 companies generally, and no information in other ranks.

Value Line cannot (ethically, and legally, I believe) trade on changes in its rankings for its funds until a few days after it has released its reports, which probably goes a long way in explaining any divergence in its funds' performance and its model portfolio performance. The other factor is going to be transactions costs. If you have a high churn portfolio, like it would necessarily be if you are trading on changes in ranks, such costs will be large.

A few years ago there were some articles in the Journal of Finance that studied a collection of newsletters in general and basically conclude that if you consider the size and style (value/growth, momentum, etc) of the companies they look at - no newsletter was able to generate meaningful alpha outside of the space they work in.
posted by milkrate at 1:40 PM on June 18, 2005

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