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Will Value Investing Run Up Next?

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Monday, 12 November 2018 08:00 AM Current | Bio | Archive

It’s no secret that value investing works. Countless studies (and real-world practitioners) have proven that a strategy of buying cheap stocks beats the market over time.

Dimensional Fund Advisors recently ran the numbers for the 90-year stretch of 1926 to 2016 and found that a disciplined large-cap value portfolio outperformed the S&P 500 by over 2% per year.

That 2% might not sound like much. But compounded over the length of the study, it made a huge difference. A dollar invested in the S&P 500 in 1926 would have grown to a little over $6,000 by 2016. That same dollar invested in the large-cap value portfolio would have grown to over $13,000.

That’s huge.

The problem with value investing is that it doesn’t outperform every year… or even every decade. There are long stretches where value gets its butt kicked.

Take a look at the chart below.

This divides the value of the Russell 1000 Value Index by the Russell 100 Growth Index.

When the line is rising, value stocks are outperforming growth stocks. When the line is falling, value stocks are underperforming growth stocks.

We’re Poised for a Comeback

Going back to the late 1970s, growth and value have each had three respective stretches of outperformance.

Value outperformed throughout the early to mid-1980s, though growth dominated in the late 1980s. Value enjoyed a nice comeback in the early 1990s… though when the dot-com boom really got underway in the mid-1990s, growth left value in the dust for several years.

Value enjoyed a massive run of outperformance from 2000 to 2007. These were some of the very best years in the careers of long-time value investors like Warren Buffett.

But for the past 10 years, growth has utterly crushed value.

I believe value is poised to make a major comeback. I won’t go into detail today, as I don’t want you skipping my presentation on Friday and hitting happy hour early.

But I believe the next five to 10 years could look a lot like the 2000 to 2008 period.

That’s bad news if you’re betting heavily on social media stocks. But it’s fantastic news if you’re a value or income investor like me.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

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CharlesSizemore
The problem with value investing is that it doesn’t outperform every year… or even every decade. There are long stretches where value gets its butt kicked.
value, investing, run, up
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2018-00-12
Monday, 12 November 2018 08:00 AM
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