For anyone with more than a decade in the markets, the “value premium” is almost a sacred rule. The idea that stocks with lower valuation premiums would beat their more expensive “growth” peers is almost a given. Nobel laureates Eugene Fama and Kenneth French first identified the value premium in 1992, comparing returns on high book-to-market value stocks against low book-to-market stocks. It’s one of the three factors in their asset pricing model built to explain excess returns in a portfolio. Since the financial crisis, the outperformance of value stocks has been called into question, with… Read More
For anyone with more than a decade in the markets, the “value premium” is almost a sacred rule. The idea that stocks with lower valuation premiums would beat their more expensive “growth” peers is almost a given. Nobel laureates Eugene Fama and Kenneth French first identified the value premium in 1992, comparing returns on high book-to-market value stocks against low book-to-market stocks. It’s one of the three factors in their asset pricing model built to explain excess returns in a portfolio. Since the financial crisis, the outperformance of value stocks has been called into question, with growth stocks easily besting their value peers. The shift has turned the traditional investing theme on its head, and even one guru of value investing has questioned the future of cheap stocks. But economic realities are catching up to growth investing and value stocks may be ready to retake their dominance. Two economic scenarios await investors over the next several years — and neither is good for growth stocks. When one of these futures begins to take shape, value names may prove to be the only path to profits. The Death Of Value Investing Has Been Greatly Exaggerated The… Read More