[[Start here]] → [[What works in stocks?|what works]] → [[expose to return drivers|drivers]] → [[cheap stocks beat expensive stocks|cheap beats expensive]] → composite --- Trying to measure a company’s “value” with a single ratio is like trying to measure someone’s health just by weighing them. Yes you learn something, but rarely enough. You’d need to take their blood pressure, check their heart rate, look at their sleep, diet, exercise patterns and so on. It’s the same with _value investing_. People often use one ratio like the P/E ratio to decide something is “cheap.” But that’s just a single noisy clue. Other ratios - dividend yield, price to free cashflow, price to sales etc - all capture different perspectives around what makes a stock “undervalued.” When you blend these signals into a **composite score**, the result is smoother and more reliable. Many studies have shown this clearly: portfolios built on _a mix_ of value measures earn about the same returns (or more) as single-ratio portfolios but with **less risk** and **more consistent performance** over time. See below from Cliff Asness[^1] : ![[composite-value-asness.png]] A key reason why this occurs is because [[different valuation ratios work best at different times]]. In the 1990s dividend yields were useless, but they came roaring back into fashion in the 2000s. These principles we have used at Stockopedia in our StockRanks[^2]. Our ValueRank is based loosely upon James O’Shaugnessy’s Value Composite, which was outlined in the 4th Edition of “What Works on Wall Street”[^3]. [^1]: [[Asness - Fact, Fiction and Value Investing]] [^2]: [[Croft - Investing with the StockRanks]] [^3]: [[O’Shaugnessy - What Works on Wall Street]]