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The Missing Value of Value Investing

Value investing - technically defined as stocks that are trading at with a lower price-to-book value, or in layman’s terms buying stocks that are cheaper than they should be - has not performed as well as it has historically.  Growth stocks, companies with higher price-to-book values, have done better so far year to date, the past 12 months, the past 3 years, and the past 5 years.  

It’s really tempting to bail, if I’m honest - and chase those higher returns in growth funds.

However, historically value rewards the patient investor, as seen by the chart above.  Going back over rolling averages from 1926 - 2017,  value outperforms growth 84% of the time in 10 year increments, 75% of the time in 5 year increments, and 61% of the time in one year increments.  

Over this long stretch of time, there have been 13 separate 10-year periods since 1937 that value didn’t beat growth.

Nothing is ever guaranteed with investing - and the benefits of value certainly aren’t guaranteed to come back full circle.  But the commitment to any investment approach, whether it’s to value, to stocks over bonds, to smaller companies, or to higher profitability companies requires patience - because the evidence won’t materialize each and every year.  

Where investors - myself included - get in trouble is when we chase shorter term returns and abandon the research that led to our initial decision to invest that way.  In fact, I think it’s one of the chief reasons that the Behavior Gap exists.  
Interesting Resources 

1. IRS - New 2019 Retirement Plan Contribution Limits
For the first time since 2013, the IRS announced this week higher individual retirement account contribution limits.  You can now contribute up to $6,000, up from $5,500, per tax year into IRAs or Roth IRAs, and an extra $1,000 (up to $7,000) if you’re over age 50.  A similar $500 bump up takes place in employer-sponsored plans like 401(k) and 403(b)’s.  Not only is this overdue, but I’m personally excited to set monthly contributions for clients under 50 at a rounded $500/month, instead of the infuriating $458.33/month that left my OCD'ing self making 4 cent transfers at the end of the year.  


2. Tim Ferriss (AJ Jacobs) Podcast - 10 Strategies to Be Happier Through Gratitude 
I spent an unusual amount of time driving the past few weeks, and have been getting caught up on podcasts.  This one really struck me as ways to intentionally build gratitude in our lives.  Two of my favorites were #5 Using Gratitude to Fall Asleep (start with A and find a word for each letter of the alphabet of something you’re grateful for as you lay in bed) and #7 Try to Discover The Hidden Masterpieces All Around You (pausing, reflecting, thinking of the brilliance of things around us every day).  If you’re a podcast listener, give this one a listen.  
Thanks for granting me these couple of minutes in your busy day - your attention is something I don’t take as granted.

Gratefully,
Jeremy
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