Growth v. Value Investing

Growth vs. Value

Since the financial crisis of 2008, the Federal Reserve has held interest rates significantly below the rate of inflation in order to encourage people to make riskier investments. As asset prices have risen, the economy has grown, but it has grown slowly. This is mostly likely due to high levels of debt, reluctance to take risk, technological change, demographic factors and regulatory burden.

As a result, capital has been invested more and more through index funds, ETFs, through so-called "robo-advisors" and other quantitatively driven strategies. These are mostly momentum strategies because as companies become bigger and bigger, they attract more and more investment capital (as long as net capital has come into the markets). In today's low-growth, low-interest-rate environment, investors have sought to position for any growth and also to receive income that helps them meet their expenses. This has been going on for 11 years.

Because of this preference for growth and income, growth stocks (businesses that are able to grow their revenue) and long-maturity bonds have delivered outsized returns over the last 11 years. But also in this process, many fantastic investments have become overlooked, ignored and outright shunned. Overlooked investments is where we focus our time and attention because that is where the value is.

The following presentation supports the fact that today’s environment is an anomaly. It is an anomaly because the difference between the performance of growth and value stocks has been so dramatic for so long that it now requires the attention of long-term investors. As the presentation will show, there are many reasons for this performance disparity... and to bet on continued outperformance of growth requires assuming a huge amount of valuation risk. In the long run, this is not likely to be a good bet. Conversely, money-making opportunities abound in many of the value stocks that have been ignored over the last 11 years while Amazon is up 35-fold.

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