Since 2010, growth stocks have produced a 17.4% annualized return, much higher than the 10.6% return on value stocks. But don’t count value investing out yet. According to a recent article onCabot Wealth, if history tells us anything, it’s that growth cycles generally last about a decade.
Throughout the 20th century, value investing evolved from public equity markets rife with fraud to investing based on fundamental analysis and valuation, but in the latter half of the century we saw much the same practices that value investing is based in today: getting good companies at bargain prices.
Index providers also use an outdated definition of value investing, focusing purely on statistics in a world where company value is driven by intellectual assets.
Since the 1982 recession, growth cycles have lasted about 10 years, providing fewer opportunities for bargains, and allowing true growth companies more time to increase their earnings. With the increasing digitization of the economy, investors have responded by accelerating their valuation assumptions, signaling the possible end of a growth cycle.
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