No. of Recommendations: 1
For ten years growth has outperformed value. Does the value premium not work anymore? I think it may not work as well. The reason is things work well, when no one knows about them. In 1992, French, and Fama discovered the French Fama 3 factor model. This means that you achieve the best performance by following 3 factors.

1. Stocks outperform bonds
2. Value outperforms
3. Small cap outperforms

Once this was known, people started buying more small value stocks, and the advantage was arbitraged away.

However, I think it will still work. For one thing, the growth of growth stocks tapers off. When that happens the high p/e stocks get slammed. Value stocks, realize they are doing something wrong, and make changes, and their earnings increase, and catch up to the market, and their prices go up faster than the market.

However, I think the main reason value will still work is because it stops working for long periods of time, and people give up on it. If it always worked, it would be arbitraged away.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.