The poor performance of value in recent years has led many investors to abandon the strategy, but “observers of market history know that value has faced similar death sentences previously, only to undergo a rapid reincarnation and deliver spectacular returns.” This according to a recent article by Larry Swedroe in Seeking Alpha.

Citing data from a Research Affiliates research paper, the article identifies the following historical patterns:

• Small-cap deep-value stocks tend to suffer the worst in recessions, while smaller, cyclical firms get hit harder and financial volatility “tends to cause flight from illiquid assets.”
• During recovery periods, small-cap deep-value portfolios tend to perform the best due to high earnings growth rates—growth rates that “often exceed the growth in more expensive, glamour stocks.”
• “Investors who can keep their heads when everyone about them is losing theirs can exploit simple predictable rules to make outsized returns—and have the confidence that the probability of achieving these higher returns is higher in times of crises than otherwise.”

Swedroe notes that, “While all crystal balls are cloudy, history provides us with lessons from which investors can learn.” Namely, the data reflects that during economic recoveries, “we should expect to see rapid mean reversion of earnings for value stocks, which…should lead to value outperformance.” He adds that too many investors take a near-term view, which can lead them to abandon strategies that have demonstrated long-term performance.