Many investors think value will once again have its day — although they’ve been waiting on that day for quite some time.
The old debate of growth vs. value will live on, but the empirical evidence suggests that value stocks outperform over time, even if growth stocks steal the daily headlines. It’s the perennial question among stock investors: which is better — growth investing or value investing? Recently, there’s been little contest. Growth stocks, such as , have handily outperformed value names.
Regardless of their style, investors are trying to buy a stock that’s worth more in the future than it is today. And both value companies and growth companies tend to expand at least a little over time and often significantly, making them some of the Typical investing wisdom might say that “when the markets are greedy, growth investors win and when they are fearful, value investors win,” says Blair Silverberg, CEO of Hum Capital, a funding company for early-stage firms based in New York City.
Low interest rates help make growth companies more attractive, too. Growth stocks tend to be less profitable, if they’re profitable at all, as the companies invest in operations. But in a low-rate environment investors overlook this lack of current profitability because the cost of money is low. “From 1927 through 2019, according to the data compiled by Nobel Prize laureate Eugene Fama and Dartmouth professor Kenneth French, over rolling 15-year time periods, value stocks have outperformed growth stocks 93% of the time,” he says.
Such stocks are called value traps, but the same phenomenon exists with growth stocks, and investors who buy into highly valued growth names may get burned, if the companies are unable to maintain the rapid expansion that Wall Street demands.
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