Value Investing

I often cringe at Megan McArdle's social commentary, but she seems to be pretty sharp at the level of the small, individual investor.  I especially liked her comments on value investing:

Graham's big investment coups came in the early 1930s, when the market was so depressed it was literally possible to buy some stocks for less than you'd get if you just shut the place down and sold off the assets.  Buffett similarly made a lot of money in the prolonged bear market if the 1970s.  And except for a brief period in late 2008 and early 2009, the market has simply never dipped low enough for investors to make those kinds of profits.  To be sure, 2009 was a great year for value investors, but you cannot build an entire financial career off of a single nine-month period.
 

I think that this is precisely correct.  To gain huge returns (on the order of Buffet) one really needs a stock market so depressed that extraordinary value is just sitting there.  I remain skeptical that such opportunities exist (in general) where everyone is looking.  In modern, carefully analyzed and highly liquid stocks this seems to be a hard thing to pull off. 

It's also the case that it can't be done consistently.  A single mis-priced stock could end up never appreciating in value or, even worse, could suffer an adverse change (say of CEO and thus strategy).  You need to be able to play the numbers (trying for many opportunities and relying on the law of large numbers) and that probably requires systematic under-pricing.