Don’t Ditch Your Value Stocks

Value investing is an investment strategy that targets buying undervalued cheap stocks. It’s been a great way to outperform the market long-term. The last ten years are a different story with value stocks underperforming and getting clobbered by growth stocks (stocks investors buy because their companies have strong growth rates). The extent and duration of the underperformance is understandably causing some investors to question value investing.

I started my wealth management career the last time value looked this bad compared to growth – 2000 – and there are key similarities to today. Back then, value was considered a dead investment strategy, and people were piling money into large technology growth stocks. Those growth stocks eventually became too expensive and led the market downturn, setting up value to outperform during the next bull market.

This short piece by Dimensional Fund Advisors, a large institutional money manager, does a nice job diving into these concepts. It shows that value stocks performed in line with their history over the last ten years, illustrates that stretches of underperformance like this are not uncommon, and shows how strongly value stocks have rebounded after prior relative struggles. It makes the case for staying the course if you are currently invested in value stocks, or adding some value stocks to your portfolio if you are not.

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