An Empirical Study On The Validity Of Value Investing Stock Picking Method On A-share Market

Value investing theory can be originated in1934, when the United States was in theDepression after the stock market plunged89percent in1929.The United States was at thebottom of the stock market. We can describe the period in the way that gold is sold at a brassprice ". In this case, Graham and his fans bought large quantities of stocks at a price below theintrinsic value of the stocks and earned wealth to enjoy a lifetime in the subsequent marketrebound. Along with the rise of the U.S. stock market in the forties and fifties, the classicalvalue investing theory had no good investment target. The boom of the mainstream concept ofinvesting in growth stocks began to rise in the U.S. stock market，the most famous of which is"How to select growth stocks,"authored by Philip Fisher. In this historical background,Buffett timely combined Graham’s margin of safety theory and Fisher’s Theory of Growth tocreate the modern theory of value investing.This paper is written on the position of the individual investors in the context that theChina Securities Regulatory Commission is strongly advocating the value investing theory.Firstly, we summarize the development of value investing theory in and out of China, thevalidity of the theory and the commonly used valuation methods. Then we filter out theindicators PE、PB、ROE to verify. We verify the validity of the three single indicators and itscomposition. The sample consists of156listed companies which is screened by four valueinvesting principles: continue operation, continue to grow, create value, reasonable room forgrowth. This article uses the rate of return from the end of2005to the end of2011as theexplanatory variable, uses the stock picking method for the explanatory variables, uses thelinear regression analysis model to verify the validity of various stock picking methods, usesarithmetic average method to identify reasonable concentration interval for each method.Finally, this article put forward feasible value investing method in the A-share market forindividual investors. In response to the call of advocating the value investing theory andprotect the vital interests of individual investors in the current domestic stock marketdownturn.