13 Feb SOME OBSERVATIONS ABOUT VALUE INVESTING
It is widely accepted the markets are entirely dominated by the largest capitalized names. It is also almost unanimously known that five companies comprise that greatest percentage of the S & P 500 in history. Data clearly indicates that assets in passive/index products now exceed that of active management.
Growth has outperformed value for such a long time—depending upon the source at least ten and perhaps 15 years—with many declaring value investing as dead, never to again to reassert its previous dominance.
Yesterday Bloomberg made some interesting observations of growth vs value. Value outperformed from 1963-1992. Around this juncture all became advocates of value investing stating that past performance is indicative of future performance.
In the above era, there was times that growth outperformed. The “nifty fifty” outperformed for a brief period in the 1970s. Value fell out favor around 1996 with the advent of the Internet age, falling to the lowest valuation as compared to growth for at least a generation.
The dot-com bust in 2000 lead to a value resurgent to around March 2006. Since then it has been all growth.
Bloomberg opines “value” completely died in the 2010s, falling to the levels as compared to growth that was last experienced in the 1930s when Benjamin Graham wrote his infamous value text The Intelligent Investor.
I am collector of newspaper headlines. I have the 1977 Time Magazine Cover predicating a mini ice age. I have the Donaldson Lufkin and Jenerette October 19,1987 research magazine stating equities will advance another 20% in the immediate future. More recently I have the Business Week 2014 cover stating that oil will never trade lower than $100 barrel as peak oil has been reached.
All must remember human nature believes today will last into perpetuity. This was the case in 1992 when value investing is all the rage, in 1980 when short term interest rates were 20%- and double-digit yields were forecasted forever. I would be remiss not to mention today’s negative interest rates and a sub 1% interest rate for Greek debt (down from about 45% 10 year ago).
Based upon the headlines and concentration of wealth, all have concluded that value investing will never have a resurgence.
Are the markets on the cusp of change based upon current headlines? If we use history as a guide, the answer is yes.
Just as an aside, a constant headline on CNBC is “Where to find value?” I think the answer to this question is simplistic…the value shares or the companies that are not in the technology or social media sectors.
Last night the foreign markets were down. London was down 1.44%, Paris down 0.81% and Frankfurt down 0.68%. China was down 0.34%, Japan down 0.14% and Hang Sang down 0.34%.
The Dow should open moderately lower on a surge in virus cases. The 10-year is up 11/32 to yield 1.60%. Oil is unchanged.