This week on the One Minute Retirement Tip podcast, I’m exploring the question: Are Value Stocks Coming Back In 2021?

Today, I’m talking about how growth stocks have absolutely pummelled value stocks over the last decade, and why you should pay attention to that. 

About 7 years ago,  my dad started assistant coaching girls varsity basketball at this new high school. He has been coaching basketball for 40 years and he and the head coach were both good, experienced coaches. The problem was that the high school was pretty small...so small in fact that they had trouble just getting enough girls for a full varsity roster. If you had a pulse you were heavily recruited. I’m pretty sure their starting point guard was an 8th grader.  In their first few seasons they lost every game. My dad really wanted me to come see one of their games, so I went one night and painfully sat through this other team just wallop these girls. At halftime the score was 50 to 5. I’m sure you’ve sat through youth sports games like that before. It’s hard to watch. 

Well the same has been true for value stocks compared to growth stocks over the last decade. The difference is performance of growth stocks vs. value stocks has been astounding...according to Morningstar, it’s the widest performance gap on record. Large growth averaged 14.66% returns per year in the 10 years through the end of 2020. Over that same time period, growth stocks averaged a 9.4% annual return. 

If you invested $100,000 into large cap growth stocks in those 10 years, it would have grown to $392,000. By investing in value stocks, you would have about $246,000. Nearly $150,000 less over the last 10 years. 

There are quite a few reasons why growth stocks have outperformed value stocks over the last 10 years, but what happened last year during Covid was the most telling. Believe it or not, just a handful of the biggest tech companies are responsible for the vast majority of that outperformance in growth stocks over value. Think of it as a winner take all situation where just a few of the biggest tech giants - Apple, Google, Microsoft, Facebook, Amazon, Netflix - were responsible for most of the outperformance. 

Most people believe that tech will still be the place to be for the next 10 years, but that kind of thinking is dangerous. There is always a reversion to the mean..in other words, tech will not outperform forever. Value will make a comeback at some point. It’s inevitable. The market hasn’t cared about quality and value for the last 10 years. I don’t mean to say that the big tech names aren’t quality businesses. They are. But the market will one day start appreciating attractively valued, consistently profitable, strong businesses with low debt and rewarding these companies with stronger share price growth that is more in line with the intrinsic value of the business. 

Tomorrow I’ll talk about why I think that time is coming sooner rather than later. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip.

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