1. The roots of value investing date back to the 1930s and it
is a price-driven discipline that seeks companies whose
shares are selling at a discount to their true, or
intrinsic, value.
2. Investors that are growth-oriented focus on firms whose
earnings are growing at a rapid pace which is a quality
that makes them highly sought after but for value
investors, what they seek are companies that are
temporarily out of favor. Their shares may be depressed
due to factors ranging from company-specific issues to
shifting investor sentiment, poor economic
conditions, cyclical trends or an overall market decline.
There are times when they are being ignored by the
market for no good reason.
3. There are three factors that have amply made the case for
the value style of investing over the past 25 years and
these are performance, diversification and risk control.
4. Facts about performance. First and foremost, value
investing as a strategy has done well over time, rewarding
investors with strong risk-adjusted performance. This has
actually been true over the past quarter-century.
5. Dividends have and continue to be a significant
component of the stock market's total
returns, particularly those of value stocks and this is
another important thing to keep in mind.
6. Diversification. Value and growth stocks have tended to
move in different cycles over time. Growth stocks tend to
outperform value shares and vice versa when they are in
favor. That knowledge encourages many investors to
construct portfolios employing both value and growth
strategies, helping to ensure that they have equity
investment with the potential to perform in changing
market environments.
7. More to the point, the value strategy has more than held
its own against its growth counterpart. The
outperformance of value has been particularly
pronounced in recent years.
8. Risk control. Value stocks by their nature generally tend to
be less volatile than their growth counterparts. Value
firms are better positioned to withstand market declines
as well because their shares are typically selling at
depressed prices. Meanwhile, as those expectations
change, shares of growth companies normally have higher
earnings expectations that are built into their prices and
are subject to wider price swings.
