Value and Growth
Over the past decade, investors holding U.S. value stocks have produced an annualized return of 12.9% compared to a 16.3% annualized return for growth stocks. This difference between value and growth makes many people wonder what’s wrong with value and then try to offer simple explanations for why value has underperformed growth.
Taking a closer look at the data a study found that it's not the performance of value stocks that have been out of whack — rather, the performance of growth stocks has been abnormally high relative to historical levels.
Over the last decade, value has been more or less in line with its historical returns dating back to 1929.
Growth, on the other hand, has diverged greatly over the last decade compared to its historical average. Over the 10-year period ending June 2019, growth produced an annualized return of 16.3%, much higher than its 9.7% return since July 1926.
History has also shown that these trends can quickly turn. Some of the weakest periods for value stocks when compared to growth stocks have been followed by some of the strongest. One example in history is during the dot-com era. On March 31, 2000, growth stocks had outperformed value stocks in the US over 1-year, 5-year, 10-year, and 15-year periods. Fast forward one year to March 31, 2001, value stocks had regained the advantage over every one of those periods.
Putting buy and hold to the ultimate test: the crash of 1929
To this day, no one is really sure why stocks crashed in 1929 and no one foresaw how long and terrible the bear market would be. As usual newspapers and economists tried to predict the bottom, but their efforts were in vain. The Dow didn’t surpass its 1929 high until Nov. 23, 1954, a quarter-century later.
Investors fled the stock markets and not many stuck around long enough to break even. A 1954 survey by the Federal Reserve found that only 7% of middle-class households said they preferred to invest in stocks over savings bonds, bank accounts or real estate.
Investors should always regard the stock market as sailors regard the sea—a means to an end, usually benign, but potentially lethal.
To be a long-term investor in stocks, you have to be prepared to lose more money for longer than seems possible. Anyone who takes that risk lightly is likely to sell out, in the next crash, near the bottom.
Interview with Bernard Arnault of LVMH
The LVMH process has one goal: star brands. According to Arnault, star brands are born only when a company manages to make products that “speak to the ages” but feel intensely modern. Such products sell fast and furiously, all while raking in profits. “Mastering the paradox of star brands is very difficult and rare,” Arnault notes dryly, “fortunately.”
“Our philosophy is quite simple, really. If you look over a creative person’s shoulder, he will stop doing great work. Wouldn’t you, if some manager were watching your every move, clutching a calculator in his hand? That is why LVMH is, as a company, so decentralized. Each brand very much runs itself, headed by its own artistic director. Central headquarters in Paris are very small, especially for a company with 54,000 employees and 1,300 stores around the world. There are only 250 of us, and I assure you, we do not lurk around every corner, questioning every creative decision.”
“I would say that there are four characteristics required. A star brand is timeless, modern, fast-growing, and highly profitable. The problem is that the quality of timelessness takes years to develop, even decades. You cannot just decree it. A brand has to pay its dues—it has to come to stand for something in the eyes of the world. But you can, as a manager, enhance timelessness—that is, create the impression of timelessness sooner rather than later. And you do that with uncompromising quality.”
Interview with Dani Reiss of Canada Goose
“During the IPO roadshow, we fielded questions about whether Canada Goose was a fad and whether we were worried about becoming too popular. I’ve heard such questions probably every year I’ve been at the company, yet they still make me smile. Our brand is 60+ years old, and we’ve been growing every year for at least the past 15 years, but in so many ways we’re just getting started.”
“I hear stories regularly from people who are only now discovering us about how much they love our products. Young, old, local, international, outdoor explorers or fashionistas, they all respond to our commitment to quality, authenticity, and staying true to our DNA. That’s how we remain relevant as we grow and build an enduring brand.”
“And as we do, I’ve made it clear that one aspect of our business is non-negotiable. Canada Goose will forever be a champion for “Made in Canada.” There is simply no better way for us to remain timeless. Our Canadian heritage and commitment to manufacturing our parkas domestically are at the heart of our business and brand. Many companies in our industry outsource to offshore manufacturers, but we will keep aggressively investing in producing premium products in Canada. “
Trick or Treat!
EdgePointers had some fun with costumes
Investors should always regard the stock market as sailors regard the sea—a means to an end, usually benign, but potentially lethal.
To be a long-term investor in stocks, you have to be prepared to lose more money for longer than seems possible. Anyone who takes that risk lightly is likely to sell out, in the next crash, near the bottom.
Interview with Bernard Arnault of LVMH
The LVMH process has one goal: star brands. According to Arnault, star brands are born only when a company manages to make products that “speak to the ages” but feel intensely modern. Such products sell fast and furiously, all while raking in profits. “Mastering the paradox of star brands is very difficult and rare,” Arnault notes dryly, “fortunately.”
“Our philosophy is quite simple, really. If you look over a creative person’s shoulder, he will stop doing great work. Wouldn’t you, if some manager were watching your every move, clutching a calculator in his hand? That is why LVMH is, as a company, so decentralized. Each brand very much runs itself, headed by its own artistic director. Central headquarters in Paris are very small, especially for a company with 54,000 employees and 1,300 stores around the world. There are only 250 of us, and I assure you, we do not lurk around every corner, questioning every creative decision.”
“I would say that there are four characteristics required. A star brand is timeless, modern, fast-growing, and highly profitable. The problem is that the quality of timelessness takes years to develop, even decades. You cannot just decree it. A brand has to pay its dues—it has to come to stand for something in the eyes of the world. But you can, as a manager, enhance timelessness—that is, create the impression of timelessness sooner rather than later. And you do that with uncompromising quality.”
Interview with Dani Reiss of Canada Goose
“During the IPO roadshow, we fielded questions about whether Canada Goose was a fad and whether we were worried about becoming too popular. I’ve heard such questions probably every year I’ve been at the company, yet they still make me smile. Our brand is 60+ years old, and we’ve been growing every year for at least the past 15 years, but in so many ways we’re just getting started.”
“I hear stories regularly from people who are only now discovering us about how much they love our products. Young, old, local, international, outdoor explorers or fashionistas, they all respond to our commitment to quality, authenticity, and staying true to our DNA. That’s how we remain relevant as we grow and build an enduring brand.”
“And as we do, I’ve made it clear that one aspect of our business is non-negotiable. Canada Goose will forever be a champion for “Made in Canada.” There is simply no better way for us to remain timeless. Our Canadian heritage and commitment to manufacturing our parkas domestically are at the heart of our business and brand. Many companies in our industry outsource to offshore manufacturers, but we will keep aggressively investing in producing premium products in Canada. “
Trick or Treat!
