Dongfeng Motor (489 HK). Value investing in a nutshell. Stock is up 16.1% YTD, + a mid to high single digit yield, and yet 99% of the time over the past 12 months you've looked wrong and long a value trap, and underperformed.

The iron law of value investing is that in order to generate excess returns at below average risk over the long term, you need to be willing to look wrong and underperform for long stretches of time. There is no free lunch. It's always been that way - it's not a new thing.

Value investing outperforms over the long term, but the nature of that outperformance is a combination of (1) long periods of lackluster returns; and (2) short bursts of extreme outperformance. Momentum/growth strategies are the exact opposite.

The nature of this outperformance is psychologically difficult for most investors, who prefer & gravitate to constant positive reinforcement by steadily rising prices, and it's also hard from a business/client perspective, as clients also prefer steady gains. It's why it works.

Why is it so? It sounds trite, but they way stocks usually get cheap is by going down/sideways for a very long time, and it is precisely this long period of poor returns that deters people from buying/holding obviously cheap stocks, thwarting the forces of market efficiency.

However, when the stock starts to go up, you now remove the primary reason why people don't want to own it. Since it's obviously cheap and now going up, market efficiency forces rapidly bid the stock up.

Liquidity flywheels also play a role. Falling stocks yield underperformance, which lead to redemptions and forced sales, perpetuating the cycle. When the stocks start to go up, this flywheel reverses and the stocks rapidly revert to more sensible levels, and do so very quickly.