The last time this signal flashed, value stocks soared 75%
From Nick Rokke, CFA, Analyst, Palm Beach Research Group:
My favorite signal for investing in value stocks just lit up…
The last time it did, value stocks outperformed growth stocks by 80% the following seven years.
Value stocks trade for low prices compared to their fundamentals. They’re generally less volatile than growth stocks… which are faster-growing, higher-risk companies.
Conventional Wall Street thought is that you should own an equal amount of value and growth stocks. The Street calls this a “diversified portfolio.” It makes your money easier for them to manage.
But this thinking is wrong. And here’s why…
For prolonged periods, value stocks can outperform growth and vice versa. The key to making money is to identify when the trend is about to change.
You can make a lot more money by weighting your portfolio towards whatever the market is favoring.
Since 2007, value stocks have underperformed the market by almost 20%. Over that same period, growth stocks have outperformed the market by 20%.
You can see that in the chart below… It shows the ratio between the MSCI World Value and Growth indexes.
The ratio takes the total return of the value index and divides it by the growth index. When the black line goes up, that means value is outperforming growth.
Over time, the black line has trended upward. That means value has outperformed growth over the past 40 years. But the trend isn’t a straight line up… It’s cyclical.
The two blue lines form a “trend channel.” As you can see, there are peaks and valleys within the channel. When the black line is near the top of the channel, value is outperforming growth. When it is near the bottom, growth is outperforming value.
Right now, value is near the bottom of the range and turning up. That means we can expect value stocks to retake their leadership position.
And that means outsized gains for value stocks.
Value Is on the Comeback
The last time growth stocks beat value stocks for this long was in the late 1990s — during the dot-com bubble.
But when the cycle turned, value dominated growth for the next seven years. During this time, value stocks returned 75%, while growth stocks lost 5%.
To take advantage of this trend, you could invest in Berkshire Hathaway or a value-oriented ETF like the Vanguard Value ETF (VTV). These securities will track the performance of value stocks.
If you’re looking for value stocks that have long runways for growth — the kinds of stocks that can return 100 times your money or more, you should take a look at Chris Mayer’s newest investment service, Focus.
In this service, Chris looks for small companies that enjoy high returns on their assets… reinvest the profits… and earn those high returns again and again.
Chris has been Agora’s top-performing analyst over the past 15 years, averaging over 16% annual returns on safe, conservative value stocks. His method beat Carl Icahn, George Soros, and the book value of Warren Buffett’s Berkshire Hathaway by as much as 2-to-1 for 10 years in a row.
To learn more about Chris’ latest project, Focus, and how he can help you build a portfolio of companies with “Berkshire Hathaway” potential, click here.
Nick Rokke, CFA