Anomaly – Value vs. Growth

Anomaly – Value vs. Growth

Since 1926, if you were to rank stocks by their price-to-book ratio those with low ratios (value stocks) have outperformed those with high ratios (growth stocks) by an average of 4.8% per year.

Does this always work? Absolutely not. Value stocks have underperformed since the Great Recession…mostly because financials are classified as value stocks…even though their book values aren’t
necessarily accurate.

If you go back to Benjamin Graham…the pioneer of value investing…he suggested that financials be excluded from the equation in determining undervalued companies.

It’s important to remember that all anomalies…all investment strategies…will be in-favor and out-of-favor at different times. The key is to stick with a strategy and remain disciplined.