Sumary of Value Stocks Are Catching Up. Here’s Why.:
- If you have only been following the stock market since the start of 2021, you would think pretty highly of so-called “value”.
- That is the market segment that includes stocks and sectors that tend grow their earnings slower than “growth stocks.”.
- However, the general rationale for owning value stocks is that long-term returns are more likely if you buy a stock when it is statistically cheap and undervalued compared to its future prospects..
- stocks into growth and value groups, you see that growth has outperformed value by more than 2:1 since ETFs were created to track this slice of the stock market in late 2009..
- If you are a devout value investor, you have underperformed the Large Cap market (blue line above) by about 150% over this period..
- Since neither you nor I can predict the future with pinpoint accuracy, I will instead point out a few bottom-line facts about value and growth stock indexes as they stand today..
- That is, so much money has crowded into large cap growth indexes, and a dominant portion of that money is invested in a small number of stocks, it creates a potentially dangerous situation..
- If you own some of the other stocks in that growth index, but not the biggest ones, you risk being caught up in the storm, so to speak…