[[Start here]] → [[What works in stocks?|what works]] → [[expose to return drivers|drivers]] → [[cheap stocks beat expensive stocks|cheap beats expensive]] → eras --- We’ve discussed how [[value is best measured by a composite, not a single ratio]]. Portfolios created this way seem to generate smoother and more reliable returns. One of the reasons why is that no one metric wins every decade. I remember the 1990s, an era in which dividends seemed to go out of fashion. The internet was booming, and no hot stock had any profits or dividends. So analysts leant on Price to Sales instead. If an internet stock had any sales at all, it went to the moon. Then the bubble burst and cashflow came back into fashion. Everyone realised Warren Buffett was right, and private equity started booming. So stocks with cashflow rocketed, as private equity could leverage them up and buy them out. The below chart comes from a great Cliff Asness paper[^1]. It shows a range of different “eras” and that different value ratios did better at different times. ![[composite-value-asness2.png]] The moral of the story is that if you hook a value investing strategy around a single valuation ratio (e.g. dividends, or P/B) - you can end up going broke for a decade. You can save a lot of money by realising that [[value is best measured by a composite, not a single ratio]]. And if you do use a single ratio, or if a new one comes into fashion, remember it may be a fashion. [^1]: [[Asness - Fact, Fiction and Value Investing]]