Value Investing In The Time Of COVID-19

Baruch Lev
By Baruch Lev and Anup Srivastava
Many investors, institutional and individuals, are dumping stocks these days. But some argue that this is the time to go against the grain and play the stock market smartly. Not surprisingly Larry Kudlow, Director of the National Economic Council, said recently that long-term investors should “very seriously” look at buying the dip in stocks. Others, like Mark Cuban, urge long-term investors not to sell into the panic. For all those who see an opportunity in the current depressed market, the question is: What to buy? Or, at least, how might one better position their portfolio?

One possibility that comes to mind is value investing. Sell, or even short, highly valued growth stocks and buy the beaten-down value stocks. This is based on the premise that panicked investors likely overreact more at the bottom of the value ranking than at the top. We all know that value investing didn’t work in the past 12 years (see our “Explaining the Recent Failure of Value Investing). But perhaps, in times of crisis, it’s the solution for investors. After all, value investing is based on the assertion that investors overreact to both good (growth stocks) and bad (value stocks) news.

Accordingly, we have examined the performance of the long-short value investing scheme (sell growth stocks and buy value stocks) during the 2007-2009 financial crisis, and the recent period of the stock market collapse. Here are our findings.

Read the full Seeking Alpha article.

Baruch Lev is the Philip Bardes Professor of Accounting and Finance.