Considering Investing in Value Only - Thoughts

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striker79
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Re: Considering Investing in Value Only - Thoughts

Post by striker79 »

Value has undperformed Growth by A LOT over the past decade. If you believe in reversion to mean, then perhaps you could go value now.
I do not know why this is, but speculate its because we have had a low interest rate environment for the past decade. I do not see the low interest rate environment changing, therfore I would not switch to value. If we ever start moving rates up again, I would strongly consider value again for whatever stocks I held. My assett allocation would switch to less stocks as well. In the current low interest rate and stock bubble we are in, continue enjoying the growth ride and be all in on stocks and growth. Ride the growth stocks higher, including Tesla.
garlandwhizzer
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Re: Considering Investing in Value Only - Thoughts

Post by garlandwhizzer »

I believe it is rational to go 100% value if you're absolutely certain that value will outperform growth long term, and also absolutely certain that you can tolerate the expected increased volatility and risk that value usually carries, and also that you are certain that you will not be forced by a severe bear market (potential loss of job) or personal financial setback to sell equity into weakness at fire sale prices. Bear markets are when value tends to suffer most and it is the worst time to unload them. Personally, I am not certain of any of these things so I am not tempted at all to go 100% value.

Garland Whizzer
Anon9001
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Re: Considering Investing in Value Only - Thoughts

Post by Anon9001 »

JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

Seeking guidance. I am not comfortable at all with the current valuations of large-cap growth stocks, as they appeared to have reached 1995-1999 levels. It seems that every single human being alive today is investing blindly into FAANG, Tesla, QQQ, etc. Personally, I'm just not comfortable with it (please let me know if I'm wrong to feel this way).
Interesting that you put it that way. I visit a local online investment group which favours index funds like this group and they seem to be fans of "International Diversification" due to the out-performance of US stocks over Indian Stocks in the past 10 years. I didn't want to get dislikes for telling them that owning International stocks with the intention of getting higher returns than domestic stocks is a very bad idea. I feel that that they will probably sell the International stocks after they mean-revert to under-performance. Oh well.
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Anon9001
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Re: Considering Investing in Value Only - Thoughts

Post by Anon9001 »

JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm
On second thought I would advice you to tilt only 50% to Value stocks. The problem is Momentum can continue for quite a long time and only in hind-sight is it well known that it was a bubble. A 50% VT 25% AVUV 25% AVDV portfolio should be good enough exposure to Value factor while not shooting yourself in the foot if FAANG+M keeps out-performing. Don't go all in one strategy unless you know the future.
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Greenman72
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Re: Considering Investing in Value Only - Thoughts

Post by Greenman72 »

anon_investor wrote: Sat Dec 19, 2020 3:54 pm
JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

Seeking guidance. I am not comfortable at all with the current valuations of large-cap growth stocks, as they appeared to have reached 1995-1999 levels. It seems that every single human being alive today is investing blindly into FAANG, Tesla, QQQ, etc. Personally, I'm just not comfortable with it (please let me know if I'm wrong to feel this way).

I have saved up $116k all through VTSAX (Vanguard Total Stock Market) and S&P 500, but noticed how heavily it weighs towards these stocks. I was wondering if it is anti-Boglehead to invest only into value index fund only (without selling any of my current holdings obviously, new monies only). If it is acceptable by Bogleheads, what's the right amount of my portfolio, and how to proceed with the approach?

Thank you all for your help.
You could be wrong and growth keeps going up and value under performs... VTSAX means you have everything.
+1

To make a sports analogy....imagine you're playing baseball. You're in the outfield. (Not batting, that is.) Based on all your analysis, you know that the guy who's at bat has an 85% chance of hitting into right field. What do you do?

You're saying that you would take all 7 field players (not the pitcher or catcher) and put them in right field. That's stupid, because if he hits a little blooper down the third base line, you're toast. A better idea would be to "shift" players over 20-30 feet. That way you're still covered down the third base line, but you're putting special emphasis on right field.

Same thing is true with growth vs. value. If you invest 100% in value, you'd have missed out on a lot of money over the past ten years. Maybe you should just "shift" a little instead. Maybe direct future cash flows into some type of all-cap-value ETF or something.
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JSPECO9
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Re: Considering Investing in Value Only - Thoughts

Post by JSPECO9 »

Greenman72 wrote: Wed Jan 13, 2021 7:55 am
anon_investor wrote: Sat Dec 19, 2020 3:54 pm
JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

Seeking guidance. I am not comfortable at all with the current valuations of large-cap growth stocks, as they appeared to have reached 1995-1999 levels. It seems that every single human being alive today is investing blindly into FAANG, Tesla, QQQ, etc. Personally, I'm just not comfortable with it (please let me know if I'm wrong to feel this way).

I have saved up $116k all through VTSAX (Vanguard Total Stock Market) and S&P 500, but noticed how heavily it weighs towards these stocks. I was wondering if it is anti-Boglehead to invest only into value index fund only (without selling any of my current holdings obviously, new monies only). If it is acceptable by Bogleheads, what's the right amount of my portfolio, and how to proceed with the approach?

Thank you all for your help.
You could be wrong and growth keeps going up and value under performs... VTSAX means you have everything.
+1

To make a sports analogy....imagine you're playing baseball. You're in the outfield. (Not batting, that is.) Based on all your analysis, you know that the guy who's at bat has an 85% chance of hitting into right field. What do you do?

You're saying that you would take all 7 field players (not the pitcher or catcher) and put them in right field. That's stupid, because if he hits a little blooper down the third base line, you're toast. A better idea would be to "shift" players over 20-30 feet. That way you're still covered down the third base line, but you're putting special emphasis on right field.

Same thing is true with growth vs. value. If you invest 100% in value, you'd have missed out on a lot of money over the past ten years. Maybe you should just "shift" a little instead. Maybe direct future cash flows into some type of all-cap-value ETF or something.
Excellent way of putting it.
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nedsaid
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Re: Considering Investing in Value Only - Thoughts

Post by nedsaid »

garlandwhizzer wrote: Tue Jan 05, 2021 2:46 pm I believe it is rational to go 100% value if you're absolutely certain that value will outperform growth long term, and also absolutely certain that you can tolerate the expected increased volatility and risk that value usually carries, and also that you are certain that you will not be forced by a severe bear market (potential loss of job) or personal financial setback to sell equity into weakness at fire sale prices. Bear markets are when value tends to suffer most and it is the worst time to unload them. Personally, I am not certain of any of these things so I am not tempted at all to go 100% value.

Garland Whizzer
Say the magic woid and win 64,000 doll-ahs.

The magic woid is "tilt". Never go 100% on anything, I don't favor extreme portfolios. I tilt towards Mid/Small-Caps and to Value but I still own Large Growth stocks, just less Large Growth than the market itself.
A fool and his money are good for business.
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nedsaid
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Re: Considering Investing in Value Only - Thoughts

Post by nedsaid »

Greenman72 wrote: Wed Jan 13, 2021 7:55 am
anon_investor wrote: Sat Dec 19, 2020 3:54 pm
JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

Seeking guidance. I am not comfortable at all with the current valuations of large-cap growth stocks, as they appeared to have reached 1995-1999 levels. It seems that every single human being alive today is investing blindly into FAANG, Tesla, QQQ, etc. Personally, I'm just not comfortable with it (please let me know if I'm wrong to feel this way).

I have saved up $116k all through VTSAX (Vanguard Total Stock Market) and S&P 500, but noticed how heavily it weighs towards these stocks. I was wondering if it is anti-Boglehead to invest only into value index fund only (without selling any of my current holdings obviously, new monies only). If it is acceptable by Bogleheads, what's the right amount of my portfolio, and how to proceed with the approach?

Thank you all for your help.
You could be wrong and growth keeps going up and value under performs... VTSAX means you have everything.
+1

To make a sports analogy....imagine you're playing baseball. You're in the outfield. (Not batting, that is.) Based on all your analysis, you know that the guy who's at bat has an 85% chance of hitting into right field. What do you do?

You're saying that you would take all 7 field players (not the pitcher or catcher) and put them in right field. That's stupid, because if he hits a little blooper down the third base line, you're toast. A better idea would be to "shift" players over 20-30 feet. That way you're still covered down the third base line, but you're putting special emphasis on right field.

Same thing is true with growth vs. value. If you invest 100% in value, you'd have missed out on a lot of money over the past ten years. Maybe you should just "shift" a little instead. Maybe direct future cash flows into some type of all-cap-value ETF or something.
This is more in line with what I would do myself. "Shift" is a good word here too.
A fool and his money are good for business.
Target2019
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Re: Considering Investing in Value Only - Thoughts

Post by Target2019 »

JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

Seeking guidance. I am not comfortable at all with the current valuations of large-cap growth stocks, as they appeared to have reached 1995-1999 levels. It seems that every single human being alive today is investing blindly into FAANG, Tesla, QQQ, etc. Personally, I'm just not comfortable with it (please let me know if I'm wrong to feel this way).

I have saved up $116k all through VTSAX (Vanguard Total Stock Market) and S&P 500, but noticed how heavily it weighs towards these stocks. I was wondering if it is anti-Boglehead to invest only into value index fund only (without selling any of my current holdings obviously, new monies only). If it is acceptable by Bogleheads, what's the right amount of my portfolio, and how to proceed with the approach?

Thank you all for your help.
You have a great start, just invested in Total Stock Market and S&P500. If I read this correctly, you have a tilt in your Asset Allocation (AA) to Large Cap. We have a broader AA than you, but of course it is accumulated and managed through 35 years or more.

You're missing Total International, or some combination of Developed and/or Emerging Markets.
You're tilted to US Large Cap, and would see benefit to commit more to Small/Midcap (the completion index to S&P500.

Over time you'll find more diversification, but it is difficult to go with flavor of the year, or something like that. To better tune your AA, please consider a more complete picture of markets.
https://www.callan.com/periodic-table/

Soon there'll be a 2020 version. I don't mention this to get you excited about the nine color checkerbooard, and to start timing investments, but simply to view a broader world and how it changes over time. The rest is up to you.
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Re: Considering Investing in Value Only - Thoughts

Post by Anon9001 »

nedsaid wrote: Wed Jan 13, 2021 9:22 am Say the magic woid and win 64,000 doll-ahs.

The magic woid is "tilt". Never go 100% on anything, I don't favor extreme portfolios. I tilt towards Mid/Small-Caps and to Value but I still own Large Growth stocks, just less Large Growth than the market itself.
Yes this is a good idea. The data that we have for factor premiums is done assuming normal distribution for stock returns (They use t-stat or t-value to see if a factor is working which requires normal distribution). In reality stock returns are not normally distributed. I am not sure how good the results for factor premiums would be if there were tests done on it that don't have the fantasy assumption of normal distribution for stock returns. Due to this uncertainty I would recommend even a fanatic who believes that SCV uber alles to have a portfolio of 50% VT 25% AVUV 25% AVDV.
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nedsaid
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Re: Considering Investing in Value Only - Thoughts

Post by nedsaid »

Anon9001 wrote: Wed Jan 13, 2021 9:36 am
nedsaid wrote: Wed Jan 13, 2021 9:22 am Say the magic woid and win 64,000 doll-ahs.

The magic woid is "tilt". Never go 100% on anything, I don't favor extreme portfolios. I tilt towards Mid/Small-Caps and to Value but I still own Large Growth stocks, just less Large Growth than the market itself.
Yes this is a good idea. The data that we have for factor premiums is done assuming normal distribution for stock returns (They use t-stat or t-value to see if a factor is working which requires normal distribution). In reality stock returns are not normally distributed. I am not sure how good the results for factor premiums would be if there were tests done on it that don't have the fantasy assumption of normal distribution for stock returns. Due to this uncertainty I would recommend even a fanatic who believes that SCV uber alles to have a portfolio of 50% VT 25% AVUV 25% AVDV.
If you tilt, you have to be able to accept tracking error from the broad S&P 500 and Total Stock Market Indexes. My tilts are relatively mild but they had a greater than expected drag on investment performance, or at least what I expected. I have trailed the 3 fund portfolio performance since probably 2009 because of my tilts but the 2000's were pretty good to me. In a Growth environment, a Value tilted portfolio will trail the broad indexes no matter what you do. On the other hand, my tilts were wonderful during the 2000's.
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Re: Considering Investing in Value Only - Thoughts

Post by Anon9001 »

nedsaid wrote: Thu Jan 14, 2021 9:30 am If you tilt, you have to be able to accept tracking error from the broad S&P 500 and Total Stock Market Indexes. My tilts are relatively mild but they had a greater than expected drag on investment performance, or at least what I expected. I have trailed the 3 fund portfolio performance since probably 2009 because of my tilts but the 2000's were pretty good to me. In a Growth environment, a Value tilted portfolio will trail the broad indexes no matter what you do. On the other hand, my tilts were wonderful during the 2000's.
Despite me having favourable opinions towards Value premium the only equity fund that I own is classified according to Morningstar as "Large-Growth" so I should be fine if Value keeps slumbering.
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KneePartsPro
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Re: Considering Investing in Value Only - Thoughts

Post by KneePartsPro »

JSPECO9 wrote: Sat Dec 19, 2020 3:52 pm Hello Bogleheads,

I am not comfortable at all with the current valuations of large-cap growth stocks...

I have saved up $116k all through VTSAX (Vanguard Total Stock Market) and S&P 500, but noticed how heavily it weighs towards these stocks. I was wondering if it is anti-Boglehead to invest only into value index fund only (without selling any of my current holdings obviously, new monies only).

Thank you all for your help.
OP,

Apologies if this is a repeat question. If you fundamentally disagree with the ratios held in VTSAX/S&P 500, what is your reason for holding onto them?
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Hector
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Re: Considering Investing in Value Only - Thoughts

Post by Hector »

It is important to have an investment in such a way that you can sleep well at night.
Seems like you are not comfortable with what you hold, if value makes you sleep better at night, do it.

Personally, I prefer to buy and hold. When you invest in value stock, its active investment. You buy when stock falls in value category and sell it when it's in core or growth category.
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JSPECO9
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Re: Considering Investing in Value Only - Thoughts

Post by JSPECO9 »

Hector wrote: Thu Jan 14, 2021 10:26 am It is important to have an investment in such a way that you can sleep well at night.
Seems like you are not comfortable with what you hold, if value makes you sleep better at night, do it.

Personally, I prefer to buy and hold. When you invest in value stock, its active investment. You buy when stock falls in value category and sell it when it's in core or growth category.
Since this post, I've actually moved to three fund portfolio (72/18/10). I can say it definitely feels better and hopefully rebalancing using the 5/25 rule helps me as well.
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