Does value investing always work?

Right now, I am reading Michael Mauboussin’s new book “More Than You Know: Finding Financial Wisdom in Unconventional Places“, an excellent collection of short articles that capture snippets of investment wisdom. One article touches on attribute-based investment (value, growth, momentum, charting etc.) versus circumstance-based (e.g. Soros-like styles) investment styles. Mauboussin believes that there are two main reasons why an attribute-based investment style cannot consistently work : 1) a widely-known successful strategy attracts imitators and depresses returns, 2) the world changes rapidly and a single style cannot be consistently successful. He provides the example of Bill Miller, a purported value investor who nonetheless has invested in technology and other high PE stocks, and says that to be successful, an investor has to adopt an eclectic style of investing.

I think he is wrong and that value investing can consistently work. There are two main reasons. The first is the fluidity of the term “value”. Graham found value in companies trading below book value, while Buffett broadened the term to include companies with a durable brand whose value did not show up on balance sheets. As the world changes, I am sure value would come to mean differrent things. (Therefore, Mauboussin is not truly wrong, because value investing thus defined is eclectic!) Secondly, a common feature of value investors in their long time horizons (typically 1-3 years). Very few people are willing to wait so long for a return (hence cutting down on competitors), and over a long period, different circumstances will come to pass, ensuring that there will probably be a set of circumstances where value stocks are in favor again.