Value Investing

Making a Comeback??

Is It Time For Value Investing to Return to the Limelight?

We believe macroeconomic developments in the United States and elsewhere could prove a fillip to value investing after several years of underperformance. 

The combination of suppressed interest rates and low volatility has contributed to an extended period in which the performance of value investing has lagged growth investing. 

But as we shift from what may be perceived as abnormal conditions to more normal conditions—when there is some degree of volatility and a higher interest-rate environment—we think the equilibrium between growth and value will also normalize. 

We are not predicting that there’s going to be a period of dramatic value outperformance versus growth. Rather, fundamentals suggest to us there should be more of an equilibrium reached.

DYI:  No doubt about it growth investing has outperformed value investors for some time.  However with the increase in volatility a shift could very well be in the cards.  Of course with markets at nose bleed levels this outperformance could very well be losing less money than his growth minded cousin.

Moving between value and growth investing can be a profitable adventure.  Vanguard’s U.S. Growth Fund [symbol VWUSX] return over the past 10 years was an average annual return of 10.39% as opposed to his cousin U.S. Value Fund [symbol VUVLX] at 7.82% for the exact same time period.

Timing is always the key.  DYI takes the simple approach [for those in the accumulation phase] purchases the underperforming asset and leaves alone the outperforming asset.  For our retiree [distribution phase] just the opposite sell the outperforming asset and leaves alone the underperforming asset.

My model portfolio does not address value and growth in an effort to keep things simple.  However I bring this issue up from time to time for the enterprising investor seeking higher returns.

[To determine whether value or growth is under/outperforming just look at the returns for both for 5 year and 10 year returns for Vanguard’s Growth and Value Funds and you will quickly determine who is under or outperforming; just that simple!]

Something to keep in mind when valuations are low enough for  DYI to begin purchasing stocks again.

 DYI