Is Value Investing Dead?

Money For the Rest of Us

J. David Stein

Investing, Investing Podcast, Business, Economics, Economy

4.5 • 1.4K Ratings

🗓️ 24 July 2019

⏱️ 35 minutes

🔗️ Recording | iTunes | RSS

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Summary

Why has value investing underperformed growth investing for over twelve years and how to position your portfolio for the eventual rebound in value investing.

In this episode you will learn:

The difference between growth and value investing and why value investing outperforms growth investing over the long-term.
How value and growth indices are constructed and how they differ from fundamental indexing.
What are the risks and opportunities of investing in concentrated, deep-value managers.
Why value investing will eventually rebound.

Thanks to WIX and Sleep Number for sponsoring the episode.

For show notes and more information on this episode click here.

[0:18] What is value investing?
[2:07] A historical look at growth vs. value yields.
[5:41] The return of the value stock in the early 2000s.
[11:07] The twelve and a half years of underperforming value stocks.
[13:09] The sectors controlling the performance of value and growth stocks.
[15:01] Better understanding the indices.
[20:31] Using fundamentally weighted indices to balance your portfolio.
[23:10] Are underperforming managers struggling because of poor skills or because of unfavored strategies?
[29:20] While value may be difficult to predict, it isn’t dead.

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Transcript

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0:00.0	Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it.
0:09.0	I'm your host David Stein today's episode 261. It's titled Is Value Investing dead?
0:18.7	Value Investing the idea of buying stocks that sell below their intrinsic value, stocks that are cheap.
0:28.8	Now all managers, all money managers seek to buy stocks that are cheaper than their intrinsic value.
0:35.0	And by intrinsic value, what should their prices be based on the future value of their cash flow, their profits that are paid out to
0:47.1	shareholders in terms of dividends.
0:50.6	Dividends are brought into the present using a discount rate.
0:56.0	It's known as the present value calculation.
0:58.6	That discount rate, different money managers will use different discount rates, but that discount rate reflects the rate of return that investors expect on a particular stock. Now nobody knows what the true intrinsic value of a stock is but a
1:16.7	growth manager that buys companies with very fast earnings growth they still are trying to buy a stock that they believe is
1:24.7	undervalued relative to the growth prospects. We'll look in today's episode how the
1:31.4	index providers on which ETS and index funds are based on how they
1:37.0	determine value versus growth but traditionally when we're talking about value
1:41.3	investing we're talking about value investing we're talking about managers
1:43.8	and index funds that overweight certain sectors in the market that are cheap or
1:50.0	cheaper than other sectors. So growth typically has a overweight in technology stocks,
1:58.0	value typically has an overweight in financials and utilities. And we'll look at how and is when we look at these traditional growth indices versus value indices, value has underperformed
2:19.8	for 12.5 years. That is the longest stretch that I have experienced myself.
2:27.0	I experience another stretch of value significantly underperforming back in the late 90s shortly after I became a institutional
2:37.8	investment advisor.
2:39.9	In 1999, the NASDAQ had a large representation of internet-related technology stocks.
2:47.8	That index gains 86% in 1999.
	...

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