January 26, 2017

We wanted to quickly highlight some cool research from StarCapital, a German investment firm, showing how well global value investing worked in 2016.

What the folks at StarCapital did was to sort 40 countries by their beginning-of-2016 stock market valuation, and then to average out how the cheapest and most expensive markets went on to perform for the year. We recommend checking out their report, which has some great visualizations, but here’s a summary.

Source StarCapital (returns measured in US dollars)

So the least expensive stuff, despite being generally hated and shunned at the beginning of the year, went on to consistently and significantly outperform the much more beloved expensive markets. That's a great year for value investing.  (Unlike the several years prior to 2016, which were unusually poor for the value approach... but our prior article described why that rough patch was unlikely to continue).

Of course, there were exceptions to the general trend.  Some expensive markets (including the US) did well, and vice-versa. But this is to be expected. The idea with value investing is not that it works everywhere, every year, but that it works in aggregate over the long haul.  This is what we as long-term investors care about.  And while anything can happen in a given year, overall we expect to see more years like 2016 than the other way around.