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A reader asked me to comment on a recent Forbes article titled “Active Versus Passive Management: Which Is Better?” The author, contributor Peter Andersen, asks this question while observing that, in 2014, the vast majority of active fund managers underperformed the S&P 500 Index. However, he also notes that there have been periods “where active...

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rom 1926 through 2014, the default premium (the annual return on long-term, investment-grade corporate bonds minus the annual return on long-term Treasurys) has been just 0.22 percent. Such a small premium has led many observers, including me, to conclude that investors willing to accept higher levels of portfolio risk in exchange for higher expected returns...

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Value is the phenomenon in which securities that sell at low prices relative to fundamental metrics (such as earnings, book value, cash flow, dividends and sales) on average outperform securities that sell at high relative prices. Specifically, the value premium is the annual average return realized by going long cheap assets and short expensive ones....

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Earlier this week, we began discussing some of the more pervasive and enduring facts and fictions surrounding the value premium. But it’s important to understand that the value premium—a phenomenon in which securities that sell at low prices relative to fundamental metrics outperform on average securities that sell at high relative prices—is an empirical fact....

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