A common misconception in investing is that there is a distinct difference between growth investing and value investing.
Stocks prized by a value investor may be considered worthless by a growth investor, and vice versa.
Value investors aim to profit as cheap stock prices return to their “fair value,” while growth investors seek “winners” and focus on competitive advantages.
However, some well-known investors don’t accept this difference.
For example, Warren Buffett suggests that value and growth investing are actually complementary.
His philosophy is centered on finding strong companies with durable competitive advantages trading at reasonable prices … a combination of both value and growth.
That hasn’t stopped the age-old argument over which is more profitable… growth or value.
To get a clearer picture of which strategy is “better,” we can look at the growth-to-value ratio.
Growth Has Topped Value, But…
The MSCI Growth/Value ratio is the ratio of the MSCI USA Growth Index to the MSCI USA Value Index.
When the ratio is trending up, growth stocks outperform value stocks. However, when the ratio trends down, it’s the opposite.
As you can see in the chart above, the ratio has been in an uptrend (with the exception of 2022-2023).
However, if you look even closer, the growth-to-value ratio has recently started trending down, suggesting value stocks are gaining momentum.
What’s even more intriguing is when we take a closer look at the recent trend of growth over value.
Value Stocks Start To Make A Comeback
Historically, periods of growth or value outperformance are cyclical.
From 1980 to 1988, value mildly outperformed growth. From 1988 to 2000, it was the other way around.
From 2000 to 2007, value obliterated growth stocks.
More recently, it has been growth stocks that have carried the day for investors.
However, things may be changing…
Value Stocks Start To Outperform Growth
This chart shows the movement of the iShares Russell 1000 Value ETF (IWD)… the black line… while the yellow line is the iShares S&P 500 Value ETF (IVE), and the blue line is the S&P 500.
As you can see, both value ETFs have outperformed the benchmark by at least 3-to-1 since the start of the year.
In the case of the Russell 1000’s performance, it’s nearly 5 to 1.
This cyclical behavior is because investors tend to pour money into what has been doing well recently.
When value does well, investors are more than happy to pile money into value stocks and funds. However, when that reaches an apex, the valuations on value stocks aren’t “cheap” anymore, so the strategy underperforms.
Likewise, when growth stocks are doing well, money flows in, but those stocks can reach unrealistic valuations that retreat when fundamentals don’t support them.
A Different Type Of Cyclical System
Of course, it’s impossible to know ahead of time when exactly market leadership switches from growth to value or vice versa. No one makes a public service announcement alerting you to make the switch.
This is why Adam has spent the past 14 years refining a value investing strategy that specifically targets cheap stocks that are already trending higher. By marrying value and momentum, he ensures that he’s in the stocks that are best positioned to outperform.
Instead of traditional “buy-and-hold” investments (as a growth or value investor may undertake), this system has a monthly rotation to update an entire portfolio of 10 stocks. Think of it as a relay race in which once per month we pass the baton to a fresh set of “runners” ready to run at top speed.
On Thursday afternoon at 1 p.m. ET, Adam is going live to share this system with you.
This live webinar is free for all subscribers of What My System Says Today, and I know you will certainly benefit from tuning in.
We’re holding this event on Thursday because on Friday, you will have an opportunity to make an investment move to tap into a strategy that beat the market 3-to-1 last year.
We held a similar event last month where Adam gave away a free recommendation. Since then, that recommendation has amassed a more than 20% gain!
Clear your calendar for Thursday, and we’ll have more information on how you can join this important event later this week…
That’s all from me today.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets
