Securities markets are similar to other arenas such as business, sports, politics, gambling, and so on. That is, there are things we know and things we believe. Sometimes what we know is supported by what we believe and other times, not so much.
Since the pandemic, “growth” investing has performed markedly better than “value” investing. Growth investing is buying stocks that potentially have higher returns than value stocks, but they generally are riskier and more volatile. Value investing is choosing stocks that appear under (or fairly) valued compared to their underlying fundamentals. Their stock prices tend to be more stable and the companies usually pay a quarterly dividend.
Assigning a personality attribute we might cite Warren Buffett and John Bogle as value investors, while Elon Musk and Jeff Bezos would be growth investors.
In all ten-year periods since 1936 value investing has outperformed growth investing, except for the period we currently find ourselves in (since about 2016).
We know:
The S&P 500 valuations are very stretched right now. The price/earnings ratio ( a measure of value of the collective basket of 500 large company stocks) is about 26. The historical average over the last 50 years is about 19 times.
The “magnificent 7 stocks” (Nvidia, Microsoft, Apple, Amazon, Google, Facebook and Tesla) are up in the 20s, 30s, and over 100% (NVDA) this year alone. In 2022 the Mag 7 were down a collective 40% on the year. Swinging for the fences has its glory though sometimes results in colossal strikeouts.
The S&P 500 total value of all its company stocks is an eye popping $47.1 trillion dollars. Fully 29% of that comes from only five stocks (Microsoft, Apple, Nvidia, Google, Amazon). In the first half of 2024 63% of the return in the S&P 500 came from only five stocks (Nvidia, Microsoft, Google, Amazon, Facebook) our of 500!
We believe:
Value investing is not dead, far from it. Money is constantly in motion. When an asset class (i.e. Large Cap Tech) gets overinflated money will move to undervalued parts of the markets. Those include other industries in the U.S., markets in Europe and Asia, Small and Mid-Cap company stocks (the latter two of which have been disappointing performers in 2024), and even fixed income (as we approach the first interest rate cuts later this year).
The philosophy of our firm hasn’t changed. We are asset allocators (buying all asset classes in differing proportions), rooted in indexing (vs. only individual stock picking), and with a bias towards the Buffet and Bogle strategy of value investing.
Artificial Intelligence is a secular growth trend, and there is a place for it, and growth investing, in almost all portfolios. I fundamentally believe that value should still represent the largest share of the equity portion of client portfolios. Mark Twain said, “history doesn’t repeat itself, but it often rhymes”. Stocks change, circumstances change, emerging technologies change and yet I believe value investing will garner the attention it deserves as the best way to get rich slowly.
Ron
Attestation Statement: I Ron Gambassi hereby attest and affirm that the enclosed sales literature or advertising package contains no false or misleading statements or misrepresentations of material facts, and that all information set forth therein is in conformity with the Company’s most recently amended registration statement as filed with the Department on or about January 2023.
Data sources: Richard Bernstein Advisors, Mellon Bank, Motley Fool, Value Scope
