Beyond Conventional Wisdom: How Self-Described Value Investors Tilt toward Growth and Outperform

Using a unique dataset of stock recommendations collected between 2003 and 2022 from German buy-side investment professionals who gather annually at an exclusive value investing conference to exchange high-conviction ideas, the authors identify a surprising pattern of behavior: despite perceiving themselves as value investors, participants consistently favor stocks with growth characteristics, suggesting that the traditional book-to-market ratio definition of value investing is evolving. Over holding periods of up to three years, the recommended stocks significantly outperform the market, producing monthly alphas ranging from 37 to 67 basis points across six asset pricing models. This outperformance supports the “best ideas” hypothesis, which posits that investment professionals’ high-conviction ideas generate true alpha. Factor analysis reveals a contrarian tilt toward riskier small-capitalization growth stocks that invest aggressively, exhibit low accounting profitability, and display negative momentum. The authors apply four distinct long-term performance evaluation methodologies to confirm the robustness of these results. The findings provide new insights into the investment skill and behavior of professional investors.