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Yup. It took me years to learn this. And the major factor was reading your first book that said small growth stocks were the lowest performing asset class because such stocks are always bid up to unreasonable levels by investors seeking to find the next Microsoft. (or Apple). Only a few of such stocks will work out. To me the logic for small value stocks out performing growth over longer periods, is that it is easier to turn around a failing company than it is to reinvent the wheel. Dave
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Now that all the dividend investors are ticked off lets take a run at getting the growth investors ranting and raving!!
I actually agree with Larry Swedroe in this. I think your odds are best as a Value investor. Buying the most followed and loved stocks as Growth investors do is a prescription for disappointment. The stock market is based on expectations. Why buy the stocks with high expectations already built in? Any disappointment in earnings outlook or earnings themselves can really crater the price of these stocks.
Value stocks tend to be underfollowed and unloved and have lower expectations. Your odds for beating the expectations game are far better with value stocks. Small value does the best because these stocks are the most unloved and most underfollowed. Best odds of beating expectations.
Plus Growth is exciting and Value is boring!! Value works in part because it is so boring. Those who buy value and are not committed to this investing style will eventually lose interest and gravitate to that which is more exciting.
A fool and his money are good for business.
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