Discussion Reply Bons 1-2 paragraphs 2 references : Solution Essays

Value investing refers to finding stocks that can be purchased at a discount or at a lower price of what a company is actually worth (Tengler, 2003). Furthermore, it has been proven that this type of stock works better over the long term. As Williams (2018) stated, “Based on the study findings from Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. However, value stocks generated an average return of 17% per year over the same timeframe” (para.5). Otherwise stated, small value stocks performed about 4.4% better than growth stocks over a 96 years period. The logical reason for this performance is that value stocks are less risky. Consequently, there is a bigger room for growth over time. Berk and DeMarzo (2017) explained that value stocks tend to have a positive alpha –meaning that value stocks tend to be positive and above the security market line (p.463). In other words, alpha shows the excess return and outstanding performance of value stocks.