"Moreover, even when the value investor gets it right and this happens, they then need to sell the stock which has achieved this and find another undervalued stock and start again. This activity obviously incurs dealing costs but value investing is not something which can be pursued with a ‘buy and hold’ strategy."
He added: "In investment you ‘become what you eat’ insofar as over the long term the returns on any portfolio which has such an approach will tend to gravitate to the returns generated by the companies themselves, which are low for most value stocks.
"The longer the strategy underperforms the market and the more money it costs investors the louder the siren song becomes. And sooner or later they will be right.
"But a) they have no idea when that will be; b) if you had followed their advice to date it would require a gargantuan reversal of performance to make up the gains forgone; and c) that may continue to be the case for some time to come.”
Darius McDermott, managing director at Chelsea Financial Services, said: “Terry Smith is a fund manager we rate, and who we own in our multi-manager funds.
"He is an out and out growth manager and he has been very good at that. But I think he likes to make mischief at times, especially at this time of year.”
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