30 March 2019 - The chart that tells the story of value investing’s potential

Value stocks are currently the most out of favour in the history of financial records. Is now the time for value to make its comeback? – Article taken from Schroders

Value stocks are on their longest losing streak versus growth stocks since records began, according to data stretching back to 1936.

Value investing is the art of buying stocks which trade at a significant discount to their intrinsic value. Basically, buying companies which appear undervalued by investors for no justifiable reason.

Growth investors pay less attention to a stock’s price. Even if a company looks expensive they may believe its above average future growth justifies the expensive price tag.

Value’s longest losing streak in history

There have been three periods of dramatic underperformance by value relative to growth since records began: the tail-end of the Great Depression in the late 1930s, the build up to the bursting of the dotcom bubble in the late 1990s and now.

As the chart below shows, value’s underperformance during the late 1930s and 1990s was sharp but also short, lasting around four years and two years respectively. In comparison the current underperformance which began in 2009 is now nearly a decade old.

The good news for value investors is that in the past, value’s bouncebacks were even more dramatic than the underperformance.

Click here to continue reading the article at Schroders.

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