'Vc1' Based on Five Common Valuation Metrics

The problem with single-factor valuation ratios is that they move “in and out of favor” and can significantly underperform the overall market over any given 10-year period despite their long-term outperformance.

The solution ?

A valuation factor that uses a few valuation measures overcomes this problem by giving you a list of companies that are undervalued based on a few valuation measures and thus more consistent returns.

The use of a “value composite” to measure undervaluation rather using the single valuation ratio of for example price-to-sales or book to market.

O’Shaughnessy found that stocks...