Thread by @bopinion

Everyone loves a bargain, whether they’re buying a home or a car, and stocks are no different.

But since around 2007, value investing has suffered a devastating drought trib.al/jLadBxA trib.al/edyS9Lh

To fully appreciate the letdown, it helps to know what value’s track record looked like before this ordeal began.

From 1926 to 2006, the cheapest 30% of U.S. stocks outpaced the most expensive 30% by 4.5 percentage points a year, including dividends trib.al/jLadBxA

The difference is even bigger than it looks. To put it in perspective:

💰$100 invested in growth stocks in 1926 would have grown to roughly $150,000 by 2006

📈💰The same $100 invested in value stocks would have blossomed into nearly $4 million trib.al/jLadBxA

Little did they realize the mayhem that awaited. Value, as measured by price-to-book, trailed growth by a stunning 8.4 percentage points a year from 2007 through September, a persistent and painful collapse.

This time, value disappointed by every measure trib.al/jLadBxA

And that’s not the worst part.

Growth beat value by a record 24 percentage points a year based on price-to-book, the worst three years for value in 100 years, and by a wide margin trib.al/jLadBxA

There’s no shortage of explanations for value’s disappearance:

1. Value investing has become too popular
2. Low rates have juiced demand for growth stocks
3. Value investors are broken
4. Value companies are no match for tech competitors trib.al/sEVwvlE

In the last theory, stocks like Amazon, Netflix, Microsoft and Tesla will continue to outshine value names such as Walmart, Disney, IBM and Ford.

But don’t be so certain — there’s a tradition of growth stocks failing to live up to impossible expectations
trib.al/sEVwvlE

Every generation seems to learn that lesson anew:

➡️For Boomers, it was the Nifty Fifty
➡️For Generation X, it was the dot com bubble

History doesn’t look kindly on the proposition that Big Tech will keep its spectacular success indefinitely trib.al/sEVwvlE

This is where a longer view of history is helpful.

In all of these cases, value easily outpaced growth in the years that followed, in one case by upwards of 10 percentage points a year during the 1970s and early 1980s trib.al/oyzHzgh

Billionaire investor Howard Marks likes to say that markets hate certainty.

There may be nothing more certain in investors’ minds right now than the proposition that value stocks are a lost cause. When value reemerges, don’t call it a comeback trib.al/oyzHzgh