Contrarian Edge: Why We’re Not Celebrating the Vindication of Our Investing Principles
The market tends to largely define a stock as either growth or value. The past decade was a great time for growth stocks, which saw massive returns. Their performance even helped the overall market return at above-average levels.
In contrast, the past year has been strong for value investors. Concepts like profitability and cash flows have come to light amid some extreme economic turbulence. Those focused on growth saw massive underperformance while value held up relatively well.
Even worse are “investors” who chased into growth stocks after their share prices already had massive returns. They saw an immediate and likely permanent loss of capital by chasing growth stories past their prime.
Meanwhile, value investors tend to underperform growth investors during market rallies. But they more than make up for it during a market decline. Growth stocks get knocked down considerably.
Value stocks may sell off slightly, but will eventually move towards their full worth.
While value is having its moment, these investors are more likely to take the fact in stride. Many value-oriented funds have left the field, given a seeming lack of value and better return potential in growth over the years.
Rather than gloat, value investors find their time is better spent on finding the next value. And in today’s markets, there are plenty more value opportunities than at any time over the last few years.