In the final installment of his three-part article series, Bloomberg columnist Nir Kaissar argues, “like any investing strategy, value disappoints occasionally and sometimes for long periods, but it will be back.”
Kaissar compares the value vs. growth scenario to the stock vs. bond tug-of-war: “Like value, stocks haven’t paid in a long time,” adding that bonds beat stocks by 1.6 percentage points a year for the two decades ended last September. Yet, Kaissar points out, “there’s little grumbling about stocks. So why all the hand-wringing about value?”
One reason, he writes, is that investors haven’t been “burned” by stocks but, “by contrast, many investors haven’t seen enough of value’s cycles to have the same confidence that its current slump is temporary.” He underscores, however, that historical analysis reveals how value has disappointed before, “and the periods that followed were hugely lucrative for value investors.”
The current gap between growth and value is as wide as it has ever been, Kaissar points out, adding, “there are many ways value can close the gap.” Value businesses may prove that they can compete with their growth counterparts, for example, or “perhaps growth stocks won’t shine as brightly going forward. Any of those things,” says Kaissar, “are likely to cause investors to rethink valuations.”
Kaissar concludes with a nod to billionaire investor Howard Marks, who “likes to say that markets hate uncertainty. There may be nothing more certain in investors’ minds right now than the proposition that value stocks are a lost cause. When value reemerges—a question of when, not if—and headlines shriek with amazement, don’t call it a comeback.”
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