BE335 coursework, Autumn 2015

“Long ago, Ben Graham taught me that price is what you pay; value is what you get. Whether you’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” (Warren Buffett)

With reference to the relevant academic literature: a) critically evaluate the view that there is a distinction between fundamental value and price; and b) that investors can exploit this distinction to achieve abnormal returns.

Maximum word count: 1,600 words, excluding bibliography (this is a maximum, not a target)

Tips

This essay title is very open and is designed to give you an opportunity to show me what you understand about the issues and concepts relating to the value investing literature. Although it is expressed in two parts, (a) and (b), I don’t mind whether you present your answer in two parts or as one, so long as you address both parts of the question.

There is no one correct way of answering this question; it is possible for quite different answers to achieve very high marks. However, it is possible to misrepresent or misunderstand the evidence or arguments. It is also important that you demonstrate that you understand both sides of the argument; I don’t mind whether you agree or disagree with the sentiment behind the quote.

In planning your essay, think carefully how your answer addresses the question. Be very clear what the question is asking. It important that you have a clear conclusion that is consistent with the argument in the main text. Try to avoid a neutral position. A common problem with essays of this type is that one side of an argument is presented, then the other, and then there is a conclusion which states something like: “there is merit in both arguments”. This may be your conclusion, but if it is you need to make the case and I want to see evidence in the text that shows you haven’t just drifted towards this conclusion. Whether you agree, disagree or have a more nuanced approach to the sentiment in the question, I want to see you have carefully considered the arguments.

Referencing is important – when you cite theoretical arguments and empirical evidence you must include appropriate references. These should be in the text (not in footnotes) and should be of the form: Fama and French (1992), or for articles with more than 2 authors I will be happy to accept the following style: Lakonishok et al. (1994). The full details of the cited references should be provided in the bibliography. If you are in any doubt, I suggest you follow the style of the Journal of Finance (this will be easy for you since you will be referring to a number of JoF articles!)

Plagiarism: be careful to write in your own words. All essays will be put through JISC (the plagiarism detection service) which will identify anything that has been copied. Selective use of quotations, clearly referenced, is fine but don’t over rely on them.