Value versus Growth

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mrpotatoheadsays
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Value versus Growth

Post by mrpotatoheadsays »

On average, value stocks have outperformed growth stocks by 4.54% annually in the US since 1928.

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Re: Value versus Growth

Post by asif408 »

The bigger question is, though..... wait, what is your question?
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Re: Value versus Growth

Post by nisiprius »

Source for the graphic: this Dimensional web page. And as expected, what is being charted is "Value minus growth: Fama/French US Value Research Index minus the Fama/French US Growth Research Index."

Detail #1. Nobody could have known how to get those results before 1993 because the paper defining those indexes hadn't been published yet.

Detail #2. Nobody can get those results today because there is no fund, not even from Dimensional Fund Advisors, that tracks the Fama/French US Value Research Index, nor the Fama/French US Growth Research Index, nor a long-short portfolio tracking their difference.
Last edited by nisiprius on Thu Jan 13, 2022 5:18 pm, edited 1 time in total.
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Re: Value versus Growth

Post by Nathan Drake »

nisiprius wrote: Thu Jan 13, 2022 4:06 pm Source for the graphic: this Dimensional web page. And as expected, what is being charted is "Value minus growth: Fama/French US Value Research Index minus the Fama/French US Growth Research Index."

Detail #1. Nobody could have known how to get those results before 1993 because the paper defining those indexes hadn't been published yet.

Detail #2. Nobody can get those results today because there is no fund, not even from Dimension Fund Advisors, that tracks the Fama/French US Value Research Index.
Despite the paper not being published yet, small cap value investment was an actual thing
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Re: Value versus Growth

Post by itsallmath »

what would the average be if we took out 1933?
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Re: Value versus Growth

Post by tomsense76 »

itsallmath wrote: Thu Jan 13, 2022 4:23 pm what would the average be if we took out 1933?
Does seem anomalous doesn't it?

Edit: Just eyeballing the graph it looks like this would be something like 3.7%. So nearly 1% smaller.
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Re: Value versus Growth

Post by impatientInv »

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Re: Value versus Growth

Post by AustinC27 »

As an individual investor I get very frustrated by how etf's define "Value". Buffet himself has stated that growth is part of the value equation and vice versa. True value investing is mostly opportunity cost based. I just get very frustrated with how it's defined mostly by etf's as "a cluster of cheap stocks". Just my 2 cents...
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Re: Value versus Growth

Post by H-Town »

where's the graph for 2020 and 2021? :mrgreen: growth knocked it out of the park in those 2 years, didn't it?
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Re: Value versus Growth

Post by thenextguy »

H-Town wrote: Thu Jan 13, 2022 9:51 pm where's the graph for 2020 and 2021? :mrgreen: growth knocked it out of the park in those 2 years, didn't it?
2020, yes. 2021, no, they were about even.
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Re: Value versus Growth

Post by Hyperchicken »

mrpotatoheadsays wrote: Thu Jan 13, 2022 3:43 pm On average, value stocks have outperformed growth stocks by 4.54% annually in the US since 1928.
Go on...
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Re: Value versus Growth

Post by Apathizer »

I started a thread a few weeks ago discussing a rational reminder podcast about the value premium. I won't rehash it too much but the guest analyzed FF research and found that there were a couple seemingly innocuous decisions they made about when to calculate the value premium that affected it.

He found that if you calculated it at a different time which is just as reasonable an assumption it's about I think 25% less than they calculated originally.

This is only one study and even though it seems sound it's not necessarily definitive. And even if it's true the value premium is still statistically significant though not as large as originally thought.

Either way it's another good argument for the simplicity of index investing.
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Re: Value versus Growth

Post by Apathizer »

I started a thread a few weeks ago discussing a rational reminder podcast about the value premium. I won't rehash it too much but the guest analyzed FF research and found that there were a couple seemingly innocuous decisions they made about when to calculate the value premium that affected it.

He found that if you calculated it at a different time which is just as reasonable an assumption it's about I think 25% less than they calculated originally.

This is only one study and even though it seems sound it's not necessarily definitive. And even if it's true the value premium is still statistically significant though not as large as originally thought.

Either way it's another good argument for the simplicity of index investing.
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Re: Value versus Growth

Post by nedsaid »

Apathizer wrote: Thu Jan 13, 2022 10:57 pm I started a thread a few weeks ago discussing a rational reminder podcast about the value premium. I won't rehash it too much but the guest analyzed FF research and found that there were a couple seemingly innocuous decisions they made about when to calculate the value premium that affected it.

He found that if you calculated it at a different time which is just as reasonable an assumption it's about I think 25% less than they calculated originally.

This is only one study and even though it seems sound it's not necessarily definitive. And even if it's true the value premium is still statistically significant though not as large as originally thought.

Either way it's another good argument for the simplicity of index investing.
Well shoot, Growth has outperformed Value from 2008-2019. I also remember a recent three year stretch when Small Value did particularly poorly vs. Large Growth. Value roared in the last half of 2020 and the first half of 2021, Growth then almost caught up to Value the second half of 2021. So with such a long run of Growth dominance, wouldn't it be surprising that after 13 years that some people would be questioning the Value premium? After 13 years, wouldn't it be surprising that the Value premium would seem to diminish? Isn't it surprising after making comparisons between Growth peaks and Value troughs? I am not surprised at all.

I am so old that I remember when even cash that paid 5% was trash and Warren Buffett and Value Investing were passe back in the late 1990's. I also remember back in 2007, when the Value premium, particularly the Small Value premium was so obvious that I couldn't believe I missed it.

So I don't know, it seems like the Academics, when saying the Value premium has been reduced by 25% are stating the obvious. I mean, what did they expect? Did they expect the Value premium to increase after 13 years of Growth dominance?
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Re: Value versus Growth

Post by TheTimeLord »

Interesting factoid. The largest stock in the S&P Value index is Berkshire Hathaway with an approximate market cap. of $753 billion. As of December 1, 2021 their stake in Apple was worth $151 billion (based on the company's third-quarter 10-Q).
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Re: Value versus Growth

Post by muffins14 »

mrpotatoheadsays wrote: Thu Jan 13, 2022 3:43 pm On average, value stocks have outperformed growth stocks by 4.54% annually in the US since 1928.

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Re: Value versus Growth

Post by Apathizer »

Well it's important to note he didn't discredit FF. He just showed that their results were made under certain assumptions that were very reasonable and he recalculated their results under other assumptions that are also reasonable and got that 25% difference.

So I guess the point is financial data is really complex and it's not always clear what the signal is and what might be noise. Again the value premium still looks statistically significant probably enough that it's worth the trouble of targeting at least somewhat.
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Re: Value versus Growth

Post by nedsaid »

Apathizer wrote: Fri Jan 14, 2022 12:11 am Well it's important to note he didn't discredit FF. He just showed that their results were made under certain assumptions that were very reasonable and he recalculated their results under other assumptions that are also reasonable and got that 25% difference.

So I guess the point is financial data is really complex and it's not always clear what the signal is and what might be noise. Again the value premium still looks statistically significant probably enough that it's worth the trouble of targeting at least somewhat.
There is a certain amount of slipperiness in financial data. A lot can be done with begin and end dates, or as John Bogle would say "time period dependent." There is also the point that things change in the markets and the economy from decade to decade and you wonder how comparable data from one era is to data from another era. One big change is the evolution of accounting standards.

Despite the shortcomings of the data, assumptions, and conclusions from the research; I do think Fama and French were onto something. It is easy to dismiss this as data mining but you can't help but notice that many of the best mutual fund managers were Value investors or at least Value oriented. Academics dissecting Warren Buffett's amazing record as an investor realized that he understood factors before they were written about by the Academics.

Another reason I agree with the Academic Research is that it confirms what investors had either known or suspected for decades. As these things become better known, hard to say if the premiums will continue. My strong suspicion is that they will.
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Re: Value versus Growth

Post by Apathizer »

Yes I'm also inclined to think the value premium will persist at least to some degree. I can't remember if I discussed this with you or someone else but human cognitive fallacies tend to persist.

Many investors tend to have unrealistic expectations about the latest greatest technologies and the companies developing them well imprudently dismissing more mundane companies that are less expensive and have better prospects.

Sometimes the technophiles are right which is why I still have large growth but I like to have them in less than market cap weights because they're so expensive. I just don't see them returning nearly as much over the next decade as more reasonably priced stocks.
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Re: Value versus Growth

Post by Apathizer »

Yes I'm also inclined to think the value premium will persist at least to some degree. I can't remember if I discussed this with you or someone else but human cognitive fallacies tend to persist.

Many investors tend to have unrealistic expectations about the latest greatest technologies and the companies developing them well imprudently dismissing more mundane companies that are less expensive and have better prospects.

Sometimes the technophiles are right which is why I still have large growth but I like to have them in less than market cap weights because they're so expensive. I just don't see them returning nearly as much over the next decade as more reasonably priced stocks.
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Re: Value versus Growth

Post by Nathan Drake »

nedsaid wrote: Thu Jan 13, 2022 11:15 pm
Apathizer wrote: Thu Jan 13, 2022 10:57 pm I started a thread a few weeks ago discussing a rational reminder podcast about the value premium. I won't rehash it too much but the guest analyzed FF research and found that there were a couple seemingly innocuous decisions they made about when to calculate the value premium that affected it.

He found that if you calculated it at a different time which is just as reasonable an assumption it's about I think 25% less than they calculated originally.

This is only one study and even though it seems sound it's not necessarily definitive. And even if it's true the value premium is still statistically significant though not as large as originally thought.

Either way it's another good argument for the simplicity of index investing.
Well shoot, Growth has outperformed Value from 2008-2019. I also remember a recent three year stretch when Small Value did particularly poorly vs. Large Growth. Value roared in the last half of 2020 and the first half of 2021, Growth then almost caught up to Value the second half of 2021. So with such a long run of Growth dominance, wouldn't it be surprising that after 13 years that some people would be questioning the Value premium? After 13 years, wouldn't it be surprising that the Value premium would seem to diminish? Isn't it surprising after making comparisons between Growth peaks and Value troughs? I am not surprised at all.

I am so old that I remember when even cash that paid 5% was trash and Warren Buffett and Value Investing were passe back in the late 1990's. I also remember back in 2007, when the Value premium, particularly the Small Value premium was so obvious that I couldn't believe I missed it.

So I don't know, it seems like the Academics, when saying the Value premium has been reduced by 25% are stating the obvious. I mean, what did they expect? Did they expect the Value premium to increase after 13 years of Growth dominance?
This period of underperformance is nothing unusual at all though. Just look at the tell tale chart from Paul Merriman

A premium wouldn’t exist if there weren’t stretches like these. It’s par for the course

The “market” premium has been known for a very long time, it still exists, and it’s still prone to these same long stretches. As I said, par for the course
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Re: Value versus Growth

Post by JoMoney »

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Re: Value versus Growth

Post by feh »

Not really related to the original topic, but I usually look at the M* equities box (growth/value, large/small) each morning. The movement of money from growth to value in 2022 has been astounding.
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Re: Value versus Growth

Post by fixi reinhart »

Value and growth are 2 sides of the same coin.

Everybody should want to own high-quality *growing* businesses at a good price below fair *value*.
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Re: Value versus Growth

Post by UpperNwGuy »

feh wrote: Fri Jan 14, 2022 8:08 am Not really related to the original topic, but I usually look at the M* equities box (growth/value, large/small) each morning. The movement of money from growth to value in 2022 has been astounding.
How much has moved year to date?
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Re: Value versus Growth

Post by alex_686 »

AustinC27 wrote: Thu Jan 13, 2022 9:47 pm As an individual investor I get very frustrated by how etf's define "Value". Buffet himself has stated that growth is part of the value equation and vice versa. True value investing is mostly opportunity cost based. I just get very frustrated with how it's defined mostly by etf's as "a cluster of cheap stocks". Just my 2 cents...
The Farma/French definition of value is the industry yardstick. What would you suggest instead?

I have knocked around the industry for a fair bit of time. I have never heard a portfolio manager who did not seek value. If the definition is "opportunity cost based" this would including everything from Buffet to high frequency traders to hedge funds. It is totally a subjective based viewpoint. Even if we could agree that it should be based on fundamental investing and Benjamin Graham we still have a very wide subjective definition.

Indexes generally don't work like that. That would require a investment committee making active decisions. At that point you might as well higher a active manager. Indexes tend to work with a objective set of rules. i.e., some variation of Farma and French.
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Re: Value versus Growth

Post by feh »

UpperNwGuy wrote: Fri Jan 14, 2022 8:52 am
feh wrote: Fri Jan 14, 2022 8:08 am Not really related to the original topic, but I usually look at the M* equities box (growth/value, large/small) each morning. The movement of money from growth to value in 2022 has been astounding.
How much has moved year to date?
I don't have absolute numbers. I've just seen lots of red in the growth column and lots of green in the value column, in ways that I've never seen before.
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Re: Value versus Growth

Post by Jack FFR1846 »

In various accounts, I hold VTI, SCHB, BRK/b, SWPPX. Whether any of those are growth or value, I don't know, I don't care and I don't have any desire to care. The haystack looks fine to me.

I do sort of laugh at all the SCV hype. Jack Bogle did a video interview some years ago and explained that it's something that decades ago, was thought to be an overperformer, so everyone ran to it, pushing up the price and making performance drag. Today, it's like running towards a Blackberry, thinking that it will someday be the big thing.
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Re: Value versus Growth

Post by alex_686 »

feh wrote: Fri Jan 14, 2022 8:58 am
UpperNwGuy wrote: Fri Jan 14, 2022 8:52 am
feh wrote: Fri Jan 14, 2022 8:08 am Not really related to the original topic, but I usually look at the M* equities box (growth/value, large/small) each morning. The movement of money from growth to value in 2022 has been astounding.
How much has moved year to date?
I don't have absolute numbers. I've just seen lots of red in the growth column and lots of green in the value column, in ways that I've never seen before.
I don't think you are seeing what you think you are seeing.

By definition Value is a relative definition. You line up all of the companies and then ranking them. Depending on how you define value, 1/3 or 1/2 of the market is Value. If one company enters the value index this means another company has to be kicked out.
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Re: Value versus Growth

Post by burritoLover »

Jack FFR1846 wrote: Fri Jan 14, 2022 9:12 am In various accounts, I hold VTI, SCHB, BRK/b, SWPPX. Whether any of those are growth or value, I don't know, I don't care and I don't have any desire to care. The haystack looks fine to me.

I do sort of laugh at all the SCV hype. Jack Bogle did a video interview some years ago and explained that it's something that decades ago, was thought to be an overperformer, so everyone ran to it, pushing up the price and making performance drag. Today, it's like running towards a Blackberry, thinking that it will someday be the big thing.
So why wouldn't everyone just "run to stocks" and push up the price, "making performance drag" knowing that stocks outperform bonds?
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Re: Value versus Growth

Post by alex_686 »

burritoLover wrote: Fri Jan 14, 2022 9:19 am So why wouldn't everyone just "run to stocks" and push up the price, "making performance drag" knowing that stocks outperform bonds?
Why do you think this has not been happening?

The Equity Risk Premium, the spread between expected stock return and expected bond returns, have been steadily falling.
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Re: Value versus Growth

Post by feh »

alex_686 wrote: Fri Jan 14, 2022 9:12 am
feh wrote: Fri Jan 14, 2022 8:58 am I don't have absolute numbers. I've just seen lots of red in the growth column and lots of green in the value column, in ways that I've never seen before.
I don't think you are seeing what you think you are seeing.

By definition Value is a relative definition. You line up all of the companies and then ranking them. Depending on how you define value, 1/3 or 1/2 of the market is Value. If one company enters the value index this means another company has to be kicked out.
Image

Tried to share image showing returns for VTV and VUG year to date, and for some reason the board won't display it.

Do the comparison yourself...VTV is +2.0% and VUG is -6.4%
Last edited by feh on Fri Jan 14, 2022 9:52 am, edited 1 time in total.
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Re: Value versus Growth

Post by CletusCaddy »

nedsaid wrote: Thu Jan 13, 2022 11:15 pm
Apathizer wrote: Thu Jan 13, 2022 10:57 pm I started a thread a few weeks ago discussing a rational reminder podcast about the value premium. I won't rehash it too much but the guest analyzed FF research and found that there were a couple seemingly innocuous decisions they made about when to calculate the value premium that affected it.

He found that if you calculated it at a different time which is just as reasonable an assumption it's about I think 25% less than they calculated originally.

This is only one study and even though it seems sound it's not necessarily definitive. And even if it's true the value premium is still statistically significant though not as large as originally thought.

Either way it's another good argument for the simplicity of index investing.
Well shoot, Growth has outperformed Value from 2008-2019. I also remember a recent three year stretch when Small Value did particularly poorly vs. Large Growth. Value roared in the last half of 2020 and the first half of 2021, Growth then almost caught up to Value the second half of 2021. So with such a long run of Growth dominance, wouldn't it be surprising that after 13 years that some people would be questioning the Value premium? After 13 years, wouldn't it be surprising that the Value premium would seem to diminish? Isn't it surprising after making comparisons between Growth peaks and Value troughs? I am not surprised at all.
It was not 13 years of Growth dominating Value. It was only 3 years of Growth dominating Value: 2009, 2017, 2019.

In 2016 Value dominated Growth

In the other years they were neck and neck.

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Re: Value versus Growth

Post by alex_686 »

feh wrote: Fri Jan 14, 2022 9:49 am Tried to share image showing returns for VTV and VUG year to date, and for some reason the board won't display it.

Do the comparison yourself...VTV is +2.0% and VUG is -6.4%
So 2 points.

First you said more money was going into value, not that value was out preforming.

Second, what do you think you are seeing? We are 2 weeks into the new year. If you flip 2 sets of fair coins you are going to get different results. It does not mean that one coin is better than the other. Heck, one of the coins could be biased in favor of heads and still come up tails the majority of the time.
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Re: Value versus Growth

Post by Nathan Drake »

Jack FFR1846 wrote: Fri Jan 14, 2022 9:12 am In various accounts, I hold VTI, SCHB, BRK/b, SWPPX. Whether any of those are growth or value, I don't know, I don't care and I don't have any desire to care. The haystack looks fine to me.

I do sort of laugh at all the SCV hype. Jack Bogle did a video interview some years ago and explained that it's something that decades ago, was thought to be an overperformer, so everyone ran to it, pushing up the price and making performance drag. Today, it's like running towards a Blackberry, thinking that it will someday be the big thing.
AVUV had a 17% premium last year and already are still above 95%

If money is rushing into SCV it hasn’t occurred, the opposite has since valuation spreads are large. This implies a higher expected premium for SCV, and with valuations for growth so high, less expected premiums for growth
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Re: Value versus Growth

Post by feh »

alex_686 wrote: Fri Jan 14, 2022 10:02 am
feh wrote: Fri Jan 14, 2022 9:49 am Tried to share image showing returns for VTV and VUG year to date, and for some reason the board won't display it.

Do the comparison yourself...VTV is +2.0% and VUG is -6.4%
So 2 points.

First you said more money was going into value, not that value was out preforming.
Yes, I assumed that price up/price down indicates the flow of assets. That may be incorrect; I haven't looked at fund inflows.
Second, what do you think you are seeing? We are 2 weeks into the new year. If you flip 2 sets of fair coins you are going to get different results. It does not mean that one coin is better than the other. Heck, one of the coins could be biased in favor of heads and still come up tails the majority of the time.
It's just an observation. I'm not saying it's predictive of anything.

But, I would certainly disagree with you if you're saying it's just random movement and not indicative of investment choices being made.

ETA: according to etf.com, VUG inflows are $187M this year, VTV inflows are $1050M.
Last edited by feh on Fri Jan 14, 2022 10:15 am, edited 1 time in total.
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Re: Value versus Growth

Post by burritoLover »

alex_686 wrote: Fri Jan 14, 2022 9:43 am
burritoLover wrote: Fri Jan 14, 2022 9:19 am So why wouldn't everyone just "run to stocks" and push up the price, "making performance drag" knowing that stocks outperform bonds?
Why do you think this has not been happening?

The Equity Risk Premium, the spread between expected stock return and expected bond returns, have been steadily falling.
It isn't a fixed spread - never has been. There's a difference between saying it is reduced in some current period and saying it doesn't exist entirely.
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Re: Value versus Growth

Post by alex_686 »

burritoLover wrote: Fri Jan 14, 2022 10:15 am
alex_686 wrote: Fri Jan 14, 2022 9:43 am
burritoLover wrote: Fri Jan 14, 2022 9:19 am So why wouldn't everyone just "run to stocks" and push up the price, "making performance drag" knowing that stocks outperform bonds?
Why do you think this has not been happening?

The Equity Risk Premium, the spread between expected stock return and expected bond returns, have been steadily falling.
It isn't a fixed spread - never has been. There's a difference between saying it is reduced in some current period and saying it doesn't exist entirely.
I am not sure what you are trying to say. Let me try to clarify my point. Over the past 50 years ERP has been declining. Over the past 50 years the small cap value premium has been declining. I can make a solid case for both that people have figured out that this is where they should be putting their money, pouring into the market, pushing up the price, and causing these premiums to fall.
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Re: Value versus Growth

Post by Nathan Drake »

JoMoney wrote: Fri Jan 14, 2022 8:00 am Image
Even though this isn’t capturing deeper value it still shows a consistent long-term trend of outperformance throughout most of the period
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Re: Value versus Growth

Post by burritoLover »

alex_686 wrote: Fri Jan 14, 2022 10:21 am
burritoLover wrote: Fri Jan 14, 2022 10:15 am
alex_686 wrote: Fri Jan 14, 2022 9:43 am
burritoLover wrote: Fri Jan 14, 2022 9:19 am So why wouldn't everyone just "run to stocks" and push up the price, "making performance drag" knowing that stocks outperform bonds?
Why do you think this has not been happening?

The Equity Risk Premium, the spread between expected stock return and expected bond returns, have been steadily falling.
It isn't a fixed spread - never has been. There's a difference between saying it is reduced in some current period and saying it doesn't exist entirely.
I am not sure what you are trying to say. Let me try to clarify my point. Over the past 50 years ERP has been declining. Over the past 50 years the small cap value premium has been declining. I can make a solid case for both that people have figured out that this is where they should be putting their money, pouring into the market, pushing up the price, and causing these premiums to fall.
The person I was responding to was implying that the market had arbitraged SCV away completely. You can't arbitrage away a risk premium in a relatively efficient market. Too many here buy into the equity risk premium hook, line and sinker but when it comes to the SCV premium they think it some snake-oil concept invented by academia when really it is just riskier than the broad market.
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fixi reinhart
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Re: Value versus Growth

Post by fixi reinhart »

burritoLover wrote: Fri Jan 14, 2022 10:29 am The person I was responding to was implying that the market had arbitraged SCV away completely. You can't arbitrage away a risk premium in a relatively efficient market. Too many here buy into the equity risk premium hook, line and sinker but when it comes to the SCV premium they think it some snake-oil concept invented by academia when really it is just riskier than the broad market.
That's because SCV is empirically motivated.

There are no axiomatic first principles that you can derive that from.

Gene Fama doesn't know what has been driving it either: https://youtu.be/bM9bYOBuKF4?t=1389
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Re: Value versus Growth

Post by H-Town »

JoMoney wrote: Fri Jan 14, 2022 8:00 am Image
Many have gone a big circle and back to where it began. Then some may recognize that they could just VTI and chill.
Time is the ultimate currency. My ultimate wealth is the full control of how I spend my time.
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Taylor Larimore
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The Telltale Chart

Post by Taylor Larimore »

Bogleheads:

Twenty years ago in Chicago, I heard Mr. Bogle give a speech titled: The Telltale Chart. It is full of wisdom including his thoughts about value and growth stocks. This is the link:

http://johncbogle.com/speeches/JCB_Morningstar_6-02.pdf

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "One of the seemingly indestructible myths of investing is that stocks with small market capitalizations outpace stocks with large market capitalizations over time."
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fixi reinhart
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Re: Value versus Growth

Post by fixi reinhart »

H-Town wrote: Fri Jan 14, 2022 10:42 am Many have gone a big circle and back to where it began. Then some may recognize that they could just VTI and chill.
*VT and chill. :wink:

Buy the haystack.
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Re: Value versus Growth

Post by burritoLover »

fixi reinhart wrote: Fri Jan 14, 2022 10:37 am
burritoLover wrote: Fri Jan 14, 2022 10:29 am The person I was responding to was implying that the market had arbitraged SCV away completely. You can't arbitrage away a risk premium in a relatively efficient market. Too many here buy into the equity risk premium hook, line and sinker but when it comes to the SCV premium they think it some snake-oil concept invented by academia when really it is just riskier than the broad market.
That's because SCV is empirically motivated.

There are no axiomatic first principles that you can derive that from.

Gene Fama doesn't know what has been driving it either: https://youtu.be/bM9bYOBuKF4?t=1389
It's possible that it is primarily a behavioral explanation but we do not have enough data to say this with any certainty. The large spread in valuations between growth and value seem to indicate otherwise. And the SCV premium also had persisted in ex-US countries since it was discovered. And it has a valid risk story - it is not some characteristic pulled from data mining. It's also possible that the equity risk premium is primarily a behavioral one as well and the last 100 years are an anomaly.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Value versus Growth

Post by fixi reinhart »

burritoLover wrote: Fri Jan 14, 2022 10:55 am It's possible that it is primarily a behavioral explanation but we do not have enough data to say this with any certainty. The large spread in valuations between growth and value seem to indicate otherwise. And the SCV premium also had persisted in ex-US countries since it was discovered. And it has a valid risk story - it is not some characteristic pulled from data mining. It's also possible that the equity risk premium is primarily a behavioral one as well and the last 100 years are an anomaly.
I was just stating a reason why people put less faith into SCV.

It is an active value investing strategy (that disguises itself as being passive, just because it uses pre-defined mechanical buy and sell criteria) that goes somewhat against the ethos of passive investing.
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Re: Value versus Growth

Post by burritoLover »

fixi reinhart wrote: Fri Jan 14, 2022 11:01 am
burritoLover wrote: Fri Jan 14, 2022 10:55 am It's possible that it is primarily a behavioral explanation but we do not have enough data to say this with any certainty. The large spread in valuations between growth and value seem to indicate otherwise. And the SCV premium also had persisted in ex-US countries since it was discovered. And it has a valid risk story - it is not some characteristic pulled from data mining. It's also possible that the equity risk premium is primarily a behavioral one as well and the last 100 years are an anomaly.
I was just stating a reason why people put less faith into SCV.

It is an active value investing strategy (that disguises itself as being passive, just because it uses pre-defined mechanical buy and sell criteria) that goes somewhat against the ethos of passive investing.
Same applies to the S&P 500 which is includes only large caps, has profitability/quality screens and a committee that can make active decisions on inclusion or exclusion.
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Re: Value versus Growth

Post by fixi reinhart »

burritoLover wrote: Fri Jan 14, 2022 11:09 am Same applies to the S&P 500 which is includes only large caps, has profitability/quality screens and a committee that can make active decisions on inclusion or exclusion.
The S&P 500 is a lot more passive than SCV. It doesn't buy and sell stocks because it thinks they are undervalued or overvalued. It tries to give a fair representation of the American stock market.

The fact that it mirrors VTI so closely is proof of that.
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Re: Value versus Growth

Post by burritoLover »

fixi reinhart wrote: Fri Jan 14, 2022 11:11 am
burritoLover wrote: Fri Jan 14, 2022 11:09 am Same applies to the S&P 500 which is includes only large caps, has profitability/quality screens and a committee that can make active decisions on inclusion or exclusion.
The S&P 500 is a lot more passive than SCV. It doesn't buy and sell stocks because it thinks they are undervalued or overvalued. It tries to give a fair representation of the American stock market.

The fact that it mirrors VTI so closely is proof of that.
It is more proof that large caps dominate the returns of a market cap weight fund. They excluded Tesla when it first met their positive earnings screen - they didn't give an explanation but the narrative at the time was that Tesla was overvalued or that Tesla's earnings weren't "real" because they included selling carbon credits. If it was truly a passive vehicle, it should just be the top 500 companies by market cap rebalanced on a specific arbitrary schedule with the only consideration being liquidity/cost concerns. SCV funds, like Avantis, are just using a different set of mechanical metrics to screen and are no more active than the S&P 500 - just because you don't agree with those metrics, doesn't make it more active.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
fixi reinhart
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Re: Value versus Growth

Post by fixi reinhart »

burritoLover wrote: Fri Jan 14, 2022 11:21 am It is more proof that large caps dominate the returns of a market cap weight fund. They excluded Tesla when it first met their positive earnings screen - they didn't give an explanation but the narrative at the time was that Tesla was overvalued or that Tesla's earnings weren't "real" because they included selling carbon credits. If it was truly a passive vehicle, it should just be the top 500 companies by market cap rebalanced on a specific arbitrary schedule with the only consideration being liquidity/cost concerns. SCV funds, like Avantis, are just using a different set of mechanical metrics to screen and are no more active than the S&P 500 - just because you don't agree with those metrics, doesn't make it more active.
The S&P 500 is, for all practical purposes, passive BECAUSE it tracks the passive index that is the Total American Stock market so well.

A strategy that buys and sells stocks because the screens tell them that they are undervalued or overvalued is an active value investing strategy.
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