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Periodic, unsolicited musings on Value vs Growth:
It’s looking as though the most recent spell of Value outperformance over Growth is over after yet another consistently brief period of strength
It’s looking as though the most recent spell of Value outperformance over Growth is over after yet another consistently brief period of strength
The long term trend remains consistent.
10 year returns:
Value Index +199%
Growth Index +425%
10 year returns:
Value Index +199%
Growth Index +425%
It’s not entirely unfounded of course.
Value performance relative to Growth has directionally tracked the (downward) relative trend in their earnings expectations
Value performance relative to Growth has directionally tracked the (downward) relative trend in their earnings expectations
A trend that has continued so far this year
Leading to a rather wide valuation disparity. One that contrarians, mean reverters, and the like often chomp at the bits to play
But there is a difference in business quality, which matters when global growth is subdued.
Relative ROA, Operating Margin, Net Debt/EBITDA charts below
Relative ROA, Operating Margin, Net Debt/EBITDA charts below
When might Value work again?
Presumably when the macro conditions that facilitated the last period of outperformance (2000s) are replicated once more
Presumably when the macro conditions that facilitated the last period of outperformance (2000s) are replicated once more
When US consumers lever up and buy stuff
When households save less and spend more
When inflation is at least 3% and rising
When the big Emerging Markets countries see accelerating GDP growth
When China, or a peer of comparable size and resources, goes on a multi-trillion $ spending spree to bring a billion people out of poverty
When the velocity of money is accelerating instead of plummeting
How imminent do these conditions feel today?
