Is now a good time for value?



As discussed last week, value stocks are considered more "out of favor" than growth stocks and typically trade for about half the price to book ratio. Since 1927, value stocks have outperformed growth stocks by an average of 4.1%. But growth stocks have been on a run lately. However, in 2021 value stocks beat growth stocks. Investors may wonder if value's outperformance last year tells us anything about what we can expect this year?


The chart below shows the difference in returns between value and growth stocks from 1927 to 2021.



• Value stocks are expected to perform better than growth stocks every day, because a lower relative price is associated with a higher expected return.

• Historical data suggest a positive value premium regardless of its performance in the prior year.

• To evaluate the value premium’s performance from one year to the next, we first arranged years based on the annual value premium, then looked at the next year’s performance.

• The top quartile years— those with the strongest value premium performance— were followed by an average annual value premium of 4.74%. The bottom quartile— or the weakest years for the value premium— were followed by an average annual value premium of 4.35%.


Investors haven’t missed the boat. Staying consistent in your exposure to the value premium can be the most reliable way to capture long-term returns.



I'm happy to talk about your risk tolerance and the risk of your investments on a complimentary call. As a fee-only fiduciary advisor, I never receive commissions and therefore am unbiased on this topic.



Disclaimer: Past performance is not a guarantee of future results. Actual returns may be lower. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Any indices referenced for comparison are unmanaged and cannot be invested into directly. Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.


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