Value Investing: Good and Bad News

Growth investing has thrived because tech stocks have notched record profits, but the reasons to believe in value investing remain intact

John Rekenthaler 5 September, 2018 | 7:43AM
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Uber: would you rather own the stock or drive the taxi?

It’s no secret that value investing has struggled in recent years. Since the late 1990s, stock market history suggested that style of investing would lead, comfortably. But while value did indeed begin well, courtesy of the 2000-02 technology-stock crash, over the previous five-, 10-, and 15-year periods, growth is ahead.

The bad news for value investing is that growth stocks’ victory appears rational. The reason for owning value stocks is not that the cheaper firms are superior. The financial markets are not so irrationally priced that good companies can be bought for less, while inferior ones cost more. The logic is instead that the outlook for growth stocks is too high, and that for value stocks too low.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc A2,774.39 USD-1.48Rating
Amazon.com Inc3,355.73 USD-3.08Rating
Apple Inc142.94 USD-2.14Rating
Facebook Inc A355.70 USD-2.47Rating

About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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