Value was dead. Now is growth’s turn.
I was asked at the recent Maybank Invest ASEAN event, "is growth investing is dead."
Ironically I was asked whether value investing was dead 3 years ago in another event.
If I may help you recall, growth stocks were all the rage in the last few years. Many called the death of value because we were living in an age of disruption. Many companies were going to change the world and old ways of doing business were said to be obsolete.
Value stocks were underperforming and investors dragged them down further by selling them and moved capital to growth stocks. Few cared about valuation. It was all about paying for future growth.
Come Nov 2021. The tide changed. Easy money was retreating and rates were rising. The disruptive stocks began to crash. High growth rates were shunned because future value got discounted heavily due to high inflation and interest rates.
Money left growth and flowed to commodities, many of which were value stocks. 2021 was the first year value beat growth since 2016. The wheel of fortune turned.
Don't get me wrong, I am not pitting one approach over another. I am highlighting the fact that value and growth have taken turn to outperform historically.
For example, value outperformed growth from 1983 to 1989. Then it was growth's turn in 1990 to 1994. Value took over for a short period between 1995 and 1997. Growth outperformed massively during the Dotcom era, from 1998 to 2000. Value had the next laugh, outperforming greatly and over a long stretch from 2001 to 2008. Growth took the next long stretch with all the QEs happening.
I hope we learn from history.
The first lesson is that if you pick a side, either value or growth, understand that you will have to undergo periods of outperformance as well as underperformance.
It is easy to stay invested when your strategy is working well. Most investors abandon strategies when they stop working. It is no different from buying high and selling low - adopt a strategy that's winning and dump the one that is not working.
Long term investing is just a theory. Something that we see on a graph whereby the equity curve just keeps going up. In real life, we are promiscuous with our investments, never realising long term expectancy of any strategy.
The price of long term investing means you have to stick to the strategy even in the worst of times.
The second lesson is that economy goes through cycles. Interest rates too. These cycles in turn cause the ebbs and flows between value and growth stocks.
If you want to time the market with these approaches, take heed of the interest rate changes. When interest rate is falling, go for growth. When interest rate is rising, go for value.
But you have to do it early which makes it hard because one isn't certain where the interest rate direction is heading.
Momentum overlay on growth and value may provide the answer without you having to make the guess. It isn't perfect though because there can be some false signals along the way.
At the end of the day, it depends on how involved you want to be. Some just decide to buy the index. Some just stick to a strategy. Some want to time it better.
Whatever it is, understand market has cycles and no matter what approach you choose, there's a price to pay and ask yourself if you are wiling to pay it.
Ironically I was asked whether value investing was dead 3 years ago in another event.
If I may help you recall, growth stocks were all the rage in the last few years. Many called the death of value because we were living in an age of disruption. Many companies were going to change the world and old ways of doing business were said to be obsolete.
Value stocks were underperforming and investors dragged them down further by selling them and moved capital to growth stocks. Few cared about valuation. It was all about paying for future growth.
Come Nov 2021. The tide changed. Easy money was retreating and rates were rising. The disruptive stocks began to crash. High growth rates were shunned because future value got discounted heavily due to high inflation and interest rates.
Money left growth and flowed to commodities, many of which were value stocks. 2021 was the first year value beat growth since 2016. The wheel of fortune turned.
Don't get me wrong, I am not pitting one approach over another. I am highlighting the fact that value and growth have taken turn to outperform historically.
For example, value outperformed growth from 1983 to 1989. Then it was growth's turn in 1990 to 1994. Value took over for a short period between 1995 and 1997. Growth outperformed massively during the Dotcom era, from 1998 to 2000. Value had the next laugh, outperforming greatly and over a long stretch from 2001 to 2008. Growth took the next long stretch with all the QEs happening.
I hope we learn from history.
The first lesson is that if you pick a side, either value or growth, understand that you will have to undergo periods of outperformance as well as underperformance.
It is easy to stay invested when your strategy is working well. Most investors abandon strategies when they stop working. It is no different from buying high and selling low - adopt a strategy that's winning and dump the one that is not working.
Long term investing is just a theory. Something that we see on a graph whereby the equity curve just keeps going up. In real life, we are promiscuous with our investments, never realising long term expectancy of any strategy.
The price of long term investing means you have to stick to the strategy even in the worst of times.
The second lesson is that economy goes through cycles. Interest rates too. These cycles in turn cause the ebbs and flows between value and growth stocks.
If you want to time the market with these approaches, take heed of the interest rate changes. When interest rate is falling, go for growth. When interest rate is rising, go for value.
But you have to do it early which makes it hard because one isn't certain where the interest rate direction is heading.
Momentum overlay on growth and value may provide the answer without you having to make the guess. It isn't perfect though because there can be some false signals along the way.
At the end of the day, it depends on how involved you want to be. Some just decide to buy the index. Some just stick to a strategy. Some want to time it better.
Whatever it is, understand market has cycles and no matter what approach you choose, there's a price to pay and ask yourself if you are wiling to pay it.
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whqqq : What you said is very reasonable