I saw an interesting chart in the Financial Times today. It showed the relative performance of the Russell 2000 Growth index vs. the company’s 2000 Value index over the 45 years I’ve been involved in stock market investing.

definitions

the numbers

The Russell 1000 tracks the performance of the largest US-based stocks by market cap.

The Russell 2000 tracks mid-cap, US-based stocks. It’s a much better gauge of domestic US economic activity than the 1000, which includes all the mega-cap multinationals.

The Russell 3000 = Russell 1000 + Russell 2000.

growth subindices vs. value subindices

The value-tilted Russell subindices contain the lower price/sales and price/book value stocks. The growth-tilted contain the higher price/sales and price/book value names.

the FT chart

The chart shows that from 1980 until now, growth outperforms value year after year, except for 2000-2006. The turn into the 21st century featured the collapse of the internet bubble, recession, Brad Pitt and Jennifer Aniston marrying and massive layoffs of value managers who had been underperforming for a brutally long time.

Many of these value stalwarts became hedge fund managers during the ensuing, short burst of value outperformance that followed.

what I find interesting

–the extensive period of growth outperformance

–the ability of the aforementioned hedge fund managers to survive in such a hostile environment. My two thoughts: brilliant marketing skills, employing lots of financial leverage

–this is a US phenomenon, not paralleled elsewhere in the world.

more tomorrow