[[Start here]] → [[What works in stocks?|what works]] → [[expose to return drivers|drivers]] → cheap beats expensive --- ![[cheap-antiques-shop.png]] Cheap stocks, at lower relative valuations, tend to outperform expensive stocks, at higher relative valuations. This is known as the "value" effect. It’s one of the most powerful return drivers not only in stocks but across all asset classes. Some of the themes I will be filling out gradually over time: ## The characteristics of value - value can be measured in multiple ways - [[composite measures of value work best]] - different value measures work best at different times - value stocks benefit from mean reversion - value works best at the bottom of bear markets ## Why value works - value stocks have higher financial risk - value is created through over-reaction ## When value doesn’t work The value effecti doesn’t always hold true. There have been extensive periods where cheap (value) stocks have seriously underperformed expensive (glamour) stocks. ## References - Fact, Fiction and Value Investing