Don't Call It a Comeback

One of the beliefs I hold as an investment manager is that over long periods of time, value type stocks should outperform growth stocks. 

Value and growth have all sorts of different definitions by different institutions and are measured in a multitude of ways. However, the gist is that value is buying something relatively less in price (however you measure that), while growth is buying something relatively more expensive in price (however you measure that). 

Growth has dominated value for the past number of years. So much so that I’ve just come to expect “Is value dead?” type headlines to regularly pop up in my information intake. It’s a fair question! The past 10 years have been hard, and the past 3 years especially have seen growth companies outperform value companies. 

In fact, since we’re in 2021, I’ll use a word that I banned from my vocabulary in 2020: the performance difference is unprecedented. Below shows rolling 3 year period returns (reset every month) of the difference between value and growth stocks from June of 1929 through June 2020. * 

To quickly summarize this chart - everything above the horizontal line is a 3 year period when value beats growth. Everything beneath the line is a 3 year period when growth beats value.

However, I love returning to these images below, which show another data set - rolling 10, 5, and 1 year periods of times from 1926-2019** (2020 not updated yet). In fact, I’ll share three of them: value vs growth stocks, small vs large stocks, and stocks vs treasury bills. You’ll discern a pattern. 
So there is weighty historical data that suggests even beyond the past few years, there are times when what we want to outperform doesn’t do so. In fact, you were better off holding treasury bills instead of stocks 30% of 1 year periods, and 15% of 10 year periods. However, the majority of the longer period times still lean in favor of value over growth, small over large, and stocks over bonds. 

That said - we saw value possibly start to mount a comeback in the last quarter of 2020. Below shows the Russell 1000 Value ETF (blue line) against the Russell 1000 Growth ETF (purple line) from Oct 1 through this week. 
It’s too early to call it a comeback - but it certainly is noteworthy. 

See a bunch of disclosures at the bottom of this email - and always remember that past performance is not indicative of future results. 

Interesting Resources

John Mark Comer - The Ruthless Elimination of Hurry
[On why we're always so busy in our culture] - "Or we're running to something - promotions or purchases or experiences or stamps on our passports or the next high - searching in vain for something no earthly experience has on offer: a sense of self-worth and love and acceptance. 

In the meritocracy of the West, it's easy to feel like we're only as good as our next sales commissions or quarterly reports or music singles or sermons or Instagram posts or new toys. 

So we're constantly out of breath, chasing the ever-elusive wind."

8 min read | CalibratingCapital (yours truly) 
Here is my longer explanation of the announcement I snuck in the bottom of last week on New Year's Day - that Fident is not taking on any more clients. 

Being really honest, it's hard for me to talk about because I don't want it to come across as haughty - nor as prescriptive for anybody else. I don't think that growth is bad in and of itself - just when it's set as the permanent default setting for individuals.

I described it to some friends as the hardest, easy decision I've made in my career. A compelling reason why behind the decision is that we've personally defined what is Enough for us as a family - and we're incredibly  blessed to be there from an income standpoint from Fident. More growth will require More of me, and I share some expounded thoughts on this and even make reference to a few of you readers in it who I thought had some beautiful thoughts of your own. 

I haven't written anything on CalibratingCapital for a long time - for reasons maybe I'll explain in another post - and I was actually shocked at the response after I published it. It was the second highest read article I've ever written in its first two days being posted, so maybe it's resonating with folks. 
See you next week. 

Disclosures: none of this should be perceived as investment advice, and past performance is not indicative of future returns. 

*Value and Growth represented by the Fama/French US Value Research Index and Fama/French US Growth Research Index, respectively. Fama/French index data available from the data library of Ken French.

**Information provided by Dimensional Fund Advisors LP.​ In USD. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Based on monthly rolling differences in annualized returns over the periods listed. Rolling multiyear periods overlap and are not independent. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. “One-Month Treasury Bills” is the IA SBBI US 30 Day TBill TR USD, provided by Morningstar. S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. See “Index Descriptions” in the appendix for descriptions of Dimensional and Fama/French index data. 
Copyright © 2021, Fident Financial, LLC. All rights reserved.

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Fident Financial, LLC (FFL) is a registered investment advisor offering services in the state of PA and in other jurisdictions where exempted.  Opinions expressed in this email are solely those of FFL, unless otherwise specifically cited.  Material presented is believed to be from reliable sources but no representations are made by FFL as to another parties' information accuracy or completeness.

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