Detailed Fiscal Fitness Exam

A landmark study done in the early 1990s showed that value-priced stocks outperform growth stocks. More recently, Joseph Piotroski, an accounting professor at the University of Chicago business school, took another look at the study.

He found that although the value portfolio outperformed the growth portfolio, a few outperformers skewed the portfolio returns. In fact, more value stocks underperformed the market than outperformed.

Piotroski, an unusually practical sort for an academic, wondered about the relevance of a strategy that “relies on the strong performance of a few firms, while tolerating the poor performance of many deteriorating companies.” Say five stocks out of a hundred accounts for the outperformance. ...

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