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Is Value Ready for a Comeback? Thumbnail

Is Value Ready for a Comeback?

So is value investing coming back to life?

My name is Mark Wahout from Walhout Financial.  And today I'm going to talk a little bit about value investing.  So value investing just to recap is a style of investing that favours purchasing relatively inexpensive stocks versus versus purchasing relatively expensive stocks.

So right now they're relatively expensive stocks are large tech stocks.  They trade at high multiples to their cash flow, high multiples to their earnings and value stocks would be stocks that trade at cheaper prices relative to their earnings and their book value.  And historically speaking value has outperformed growth over most long periods of time in Canada and the United States and around the world. 

And if you hold just in the United States since 1926 value over that period of time has outperformed growth by about four and a half percentage points per year annualized.

So if you just look at all the solid data that we have looking at US stock market history in the United States value outperforms growth by about four and a half percentage points per year, but over the past decade or so in the United States that has definitely not been the story.  Growth has outperformed value and especially this year in 2020 value investors have have really had a rough go of it.  It seems that value has taken a lot more abuse a lot more damage than high price growth stocks.

But the one thing to remember is that that we have been here before we've seen long periods of time where where growth outperforms value.  In fact in 2000,  March 31, 2000 based on a research report that was drafted by Dimensional Fund Advisors, and I'll link to it in the show notes, in March of 2000 value had trailed growth over the past 1, 5, 10 and 15 year periods.  

https://www.dimensional.com/ca-en/insights/value-judgments-viewing-the-premiums-performance-through-historys-lens

One year later that outperformance - it was completely reversed.  The fortunes of value shifted very, very quickly and all of a sudden growth was underperforming value.  Growth had a terrible year, Dot Com happened.  High price expensive growth stocks all of a sudden took a tremendous amount of pain where Value stock started to soar people bought value stocks and the prices of those stocks soared tremendously.

So it just sort of reminded me of you know, why you want to continue to have faith in value.   And today was a fantastic day in the markets.  It was a fantastic day for value, as someone who really appreciates value. I use value style of investing in my funds. We use it tilt towards value, the funds that I use from Dimensional Fund Advisors, today was an amazing day.   One day certainly does not make a trend but it definitely brings you back to the to the idea to keep the reminder there that you want to stick with something for the long run.

You know, we have faith based on all of the data or I have faith based on all the historical data that's mounted up over the past number of decades that there is a reason why value seems to be persistent, it lasts through decades.

There's a risk story there. It's a persistent factor that tends to outperform and I can understand for sure why some people recently have said, you know, what value forget about it.  Like it's just it's not working. All I should just do is buy really expensive tech names, but today was a really good reminder that things can change really quickly.

So again, 2000, value had underperformed for like a decade and a half then one year later those fortunes had completely shifted and I've got a chart that I'm going to put up here in the presentation so you can see it just how somebody sitting at the end of that 15 year period might have sat the same way that some of us might be sitting here now saying should I even care about value anymore? Within one year it can change and it's a persistent factor. 

So it's just a reminder to everybody stay patient.  Today was a great day on a lot of fronts.  It's great to get some vaccine news, you know, hopefully we can see the light at the end of the tunnel, but for you value investors out there, you know, I'd say Keep the Faith keep hanging in there and you never know value could have a nice swift turn around for us here.

So thanks for listening and have a fantastic day.

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Please consult with your financial advisor, tax professionals, and legal professionals before making any decisions.