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You Gotta Stick With It Thumbnail

You Gotta Stick With It

Wow.  You have to go back to 2000 when value trailed growth by such a wide margin.

Entering 2020, value investing (buying cheap stocks) had lagged behind growth investing (buying expensive stocks) for several years, particularly in the United States.

For all of the wild things that has happened in 2020, that gap between growth and value has been widened even further, causing many investors to wonder whether value investing is dead. 

But the tech bubble burst in 2000 and there was a massive snap back to value investing outperforming for most of the 2000's.  

Does this forecast anything?  No.

There are a lot of things that are different about 2020 than 2000. 

Many of the companies driving the market higher in 2000 were less established businesses without solid operating and business models.  The high-flying giants of today's stock market are large and established names with real products and real competitive advantages.

So, should we just buy tech stocks?  No.

History doesn't always repeat itself but it does rhyme.  While I don't think it's reasonable to expect another "tech wreck" just like we had in 2000, history has shown us that buying stocks that are relatively cheap does do better than buying stocks that are relatively expensive in the long run.

Below, I compare the growth of a dollar in US Large Value Stocks vs. US Large Growth stocks going back to 1980 (same time period as the UBS chart above).

As you can see, despite its recent struggles, value investing (buying relatively cheap stocks) has still been the strategy of choice since 1980.  

Yes, the value premium is unpredictable and volatile, but over long periods of time it has worked historically.

But, you need to stick with it every day to have a chance to reap the benefits.

Photo by Sherise . on Unsplash


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