Value is Dead, Long Live Value

There have been many investment strategies written around value investing and how it has outperformed growth. The debate that rages on between the two camps is fun to listen to because they both have strong cases and are right. How they both can be right is because depending upon the time frame the answer change. As with all things investing, identifying your time frame is the most important thing to know.

The reason for bringing up the topic was as I looked at the past 12-month performance its clear to see value (gold) has substantially under-performed (~20% less) growth. As you can see the under-performance really took hold after the market bottomed last December from its 20% decline. The months prior to that were pretty even. Does this mean you should be ignoring value stocks? Au contraire, divergences such as this can present very compelling investment opportunities. The operative word is can.

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From a strength standpoint, as of right now, there is no reason to be buying value …. Just yet. But, when these situations arise, I would (and am) actively looking for a reversal in this divergence. Finding a bottoming pattern on a ratio chart of the two investments is the best way I know of identifying a way to capitalize on this divergence and a potential reversion to mean value run.