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Growth has outperformed value over the past 20+ years


stahleyp
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I know "value" means different things to different people but just some food for thought.

 

I was looking at a few index funds. Vanguard Growth vs Value and Vanguard Small Cap Growth vs Small Cap Value.

 

Since inception in 1992, value has led until earlier this year but has now under-performed its growth counterpart since inception.

 

The small cap funds came out in May 1998 and growth has overtaken value there too. Though the level of underperformance is small and is no where close to the underperformance in the late 90s. I knew it was bad for value but didn't know it's underperformed this long.

 

 

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I think "value investing" is largely misunderstood. Or maybe I am misunderstanding it. Whatever; my understanding works for me. Value to me is simply seeing that something is mispriced. Seeing what others don't. I feel like too often value investing gets mistaken for buying x below it's intrinsic value, which is kind of narrow-minded IMO and typically reserved for businesses that face headwinds/ questions about their existence. This is why many value investors end up watching an obvious investment like GOOG or ISRG for a decade constantly bemoaning how it's just too expensive, but how they hope to buy it on the pullback or whatever.

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I know "value" means different things to different people but just some food for thought.

 

I was looking at a few index funds. Vanguard Growth vs Value and Vanguard Small Cap Growth vs Small Cap Value.

 

Since inception in 1992, value has led until earlier this year but has now under-performed its growth counterpart since inception.

 

The small cap funds came out in May 1998 and growth has overtaken value there too. Though the level of underperformance is small and is no where close to the underperformance in the late 90s. I knew it was bad for value but didn't know it's underperformed this long.

 

Given Wall Street likes to categorize everything as growth or value, all the crap that is dying is dumped into value, weighing down on quality value investments.

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Interesting stuff.  Interesting timeframe.  That's probably why the academics to multiple cuts and rolling timeframes and out of sample...etc...  About a half a point of wind suckage, but a ton of that is of late looking at the $10K chart.  Could look even bleaker if us market runs back to CAPE 44 (from ~33 now) or if it runs back to japan 80's 100 CAPE or whatever it was (assuming Glamour stocks lead the way).  Personally, I'm long value (even weak-ass academic p/b; avoiding the glamour) versus growth for the next 20.

 

Also, should probably update after market close tomorrow when FB is (30%).

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I think "value investing" is largely misunderstood. Or maybe I am misunderstanding it. Whatever; my understanding works for me. Value to me is simply seeing that something is mispriced. Seeing what others don't. I feel like too often value investing gets mistaken for buying x below it's intrinsic value, which is kind of narrow-minded IMO and typically reserved for businesses that face headwinds/ questions about their existence. This is why many value investors end up watching an obvious investment like GOOG or ISRG for a decade constantly bemoaning how it's just too expensive, but how they hope to buy it on the pullback or whatever.

This plus what Sharad said. Value funds tend to lump in all sorts of crappy stocks. But for example, in the 2010-2012 period companies like Microsoft and Google were OBVIOUS value stocks. You weren't paying 70 cents for a dollar bill. You were paying a quarter. How many of these so called "value strategies" added those companies to the portfolio?

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