Tags: value | outperform | growth | stocks

NYT: Value Stocks Historically Outperform Growth Stocks

By    |   Monday, 14 April 2014 03:29 PM

The recent tumble of momentum-growth stocks shines the spotlight on value stocks.

Historically, value stocks have performed better than their growth brethren have. From 1968 to 2012, growth stocks (consisting of the top 20 percent of the S&P 500 based on price-earnings ratios) generated annualized returns of 7.9 percent, far behind value stocks' 13.8 percent returns, James Cullen, CEO of Schafer Cullen Capital Management, told The New York Times.

In just four of the 46 rolling five-year periods during that time span did growth stock returns surpass those for value stocks.

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Academic studies show the same pattern, according to Times columnist James Stewart.

So why are investors often more eager to grab for growth stocks than value stocks?

It's the "lottery preference," Bruce Greenwald, director of a value investing program at Columbia Business School, told The Times. People "will always overpay to try to get rich quick," he said. "That’s why lotteries never fail, even though they’re bad investments."

Investors also trust themes with "complete certainty that they cannot know to be true," Greenwald said. "Portfolio managers are always saying things like 'Tesla is the future,' or 'Amazon will dominate the web.'"

Both those stocks have recently fallen more than 20 percent from their 52-week highs.

Andrew Slimmon, managing director of Morgan Stanley Wealth Management's Global Investment Solutions, sees a strong environment now for value stocks.

"Ultimately what's happening is that the recovery is on firmer footing, and if that's the case, you'll see growth in more sectors of the economy," he told The Wall Street Journal.

"Maybe I don't need to pay up for these ultra-growth stocks, because there will be a lot of stocks in a lot of sectors that might grow as well."

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The recent tumble of momentum-growth stocks shines the spotlight on value stocks.
value, outperform, growth, stocks
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2014-29-14
Monday, 14 April 2014 03:29 PM
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