“Value stocks are nearly the cheapest they’ve ever been compared with growth companies,” writes Jason Zweig in his WSJ column Intelligent Investor referencing a study by Research Affiliates. The study finds that value stocks aren’t necessarily inexpensive relative to their own earnings and assets, but they are when compared to growth companies. It looks like this is another example of an emotionally charged market. When it will end? Nobody knows, but it may not be pretty when it does. Zweig writes:
Financial logic says cheap stocks should ultimately earn higher returns than expensive ones; the less you pay for a piece of the future, the more you will earn in the end. Emotional logic, however, says investors will often overpay for excitement.
Therefore, you should always be prepared for value to lag growth in the short run, even though cheap stocks have earned higher returns over the full sweep of decades. And “the short run” can mean many years.
Read more here.
