When It’s Value vs. Growth, History Is on Value’s Side

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Historically, value stocks have outperformed growth stocks in the US, often by a striking amount. Data covering nearly a century backs up the notion that value stocks—those with lower relative prices—have higher expected returns.

While disappointing periods emerge from time to time, the principle that lower relative prices lead to higher expected returns remains the same. Value premiums have often shown up quickly and in large magnitudes. For example, in years when value outperformed growth, the average premium was nearly 15%. On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as Exhibit 1 shows.

A consistent focus on value stocks is essential to capturing these outsize value premiums when they appear. Value investing is based on the premise that paying less for a set of future cash flows is associated with a higher expected return. That’s one of the most fundamental tenets of investing. Logic and history support a commitment to value stocks so investors can be positioned to take part when those shares outperform in the future.

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GLOSSARY

Value stock: A stock trading at a low price relative to a measure of fundamental value such as book equity.

Growth stock: A stock trading at a high price relative to a measure of fundamental value such as book equity.

Value premium: The return difference between stocks with low relative prices (value) and stocks with high relative prices (growth).

DISCLOSURES

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. “Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. Please click here to read the full text of the Dimensional Fund Advisor Disclaimer.

About the Author The ANTOLINO Wealth Advisor Team

At ANTOLINO, we prioritize trust and transparency in managing your wealth. As fiduciaries, our advice is guided by a commitment to act in your best interests and to provide thoughtful, objective wealth management aligned with your goals.

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