Over the last several months, we have discussed the remarkable underperformance of value versus growth. While many investors quickly dismiss the performance gap under the guise of “this time is different,” it has important longer-term implications. In today’s missive, we want to discuss value, the margin of safety, and the real art of “doing nothing.”

This Time Is Different

A recent MarketWatch article made an argument for why this time is different than previous cycles.

“Investors seem to want to embrace a value tilt – stocks that will do well as the economic recovery gathers steam. However, they continue to fall back on the tried-and-true growth stocks that have done well so far, through more uncertain times. But what if those old ‘value’ and ‘growth’ frameworks are the wrong way to measure market moves?”

If you re-read the statement closely, there are a couple of issues that stand out.

  1. If “individuals” continue to “fall back” into the stocks that are rising with the market, then they are “speculating” by chasing prices rather than “buying value.”
  2. There is nothing wrong with the “growth” and “value” frameworks, expect in periods where they don’t fit the speculative fervor of the market.