When the Tokyo Stock Exchange unveiled a campaign to whip poorly managed companies into shape two years ago, investors responded by piling into companies with the lowest valuations.
The investment thesis was that management could easily improve valuation metrics with very little effort.
For a while, that strategy worked. The top quintile of value companies — the bottom 20% of firms based on a combination of valuation metrics — outperformed their more richly valued peers over the next year and a half. The mere announcement of a buyback plan was often enough to trigger a rally.
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