“Value Loses Shine in Torrid Growth Era”: WSJ


That’s the title of an article I read in yesterday’s print edition of the Wall Street Journal.

I perked up immediately.  This is the kind of headline professional investors dream of.  The only better one would have been “Death of Stocks.”  Such dramatic headlines typically come only after a certain trend (here, growth investing) has had a years-long favorable run.  Newspaper acknowledgement of the validity–and likely continuance–of the trend very often heralds its imminent reversal.

The analogous time implicitly invoked by the word “Era” is of the late 1999s, when a several-year string of underperformance by value led to massive withdrawals from value-oriented mutual funds and the cashiering of their managers.  Many of the latter group, out of necessity, formed hedge funds–which prospered fabulously as the great value market of the early 2000s unfolded soon after.

What’s disappointing about this case is that the article which accompanies it, there’s very little support for the thesis proclaimed in the headline.  In fact, the headline has been changed to the less jazzy “Hot-Stock Rally Tests the Patience of a Choosy Lot:  Value Investors.”

Still, the facts are interesting:

–from 2012 through 2014, growth stocks and value stocks, as measured by their Russell 1000 style indices, performed in lockstep

–from 2015 through the election in 2016, growth outpaced value.  But the performance gap closed almost completely after the Trump victory

–so far in 2017, the Russell 1000 Growth has risen by almost 17%, while the 1000 Value is up by just under 5%.  So the 1000 Growth “era” has really only been going on for about seven months.

…so, a tempest in a teapot.

Also worthy of note:

–State Street Global Advisors got themselves quoted as declaring, in defiance of the numbers, in my view, that the past ten years have been the worst period for value investing “since the late 1940s.”  I have no idea what counted as growth back then and the Russell indices certainly weren’t around, so I’m not 100% sure how to assess the claim.  Can that period have been worse for value than 1995 – 1999, when the 1000 Value gained 133% while the 1000 Growth soared by 312%, a performance gap of 179 percentage points in five years?

–if the WSJ chart contained in the article is correct, the relative performance of value and growth portfolio managers has been substantially different from the action of their benchmarks–implying that growth investors are less growthy, and value investors less valuish, than their names imply.

My bottom line:  searching for a stable point about which to anchor my portfolio tactics, I was hoping to find a leverage point in journalists’ sentiment.  But this seems like a false alarm to me.

Note:  regular readers will know that I’ve been arguing for several years that the internet has deeply undermined the tenets of Graham and Dodd value investing.  Still, I think there will be times in equity investing where valuation will be the primary concern.  I think we’re in one of those now, although I have no firm idea on how, if I’m right, this will play itself out near-term trading.

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