Is The Intelligent Investor Really Intelligent? - An Ex-Ante Empirical Performance Analysis of The Value Investing Philosophy

Abstract: This study performs an ex-ante empirical analysis of a value investment strategy based on the teachings of Benjamin Graham, widely acclaimed as the originator of the value investing philosophy. Specifically, we investigate whether two comparable mechanical screening approaches of selecting U.S. listed stocks and subsequently form equity portfolios has added any value to the individual investor over the time period of 1974-2010. The results show that one of the approaches has yielded statistically significant abnormal returns over the market during the time period, gross, as well as net, of costs. Additionally, the performance of the portfolios are benchmarked against large samples of mutual funds with similar investment objective, where it can be concluded that the individual investor would be better off following the outlined mechanical strategy than investing in the average mutual fund.