Market Health

Why Value Investing Is a Passing Fad

There was a time when Warren Buffett was far and away the wealthiest man in the world.

The Oracle of Omaha was able to make making a fortune look easy.

And the billionaire value investor has tossed out pearls of wisdom that could easily be cross-stitched onto pillows and carved into marble…

“Be fearful when others are greedy.”

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

So if there ever were a Mount Rushmore of investors, Buffett’s face would surely be carved.

Like Buffett, fellow famed investors Benjamin Graham, Charlie Munger and John Templeton have made value investing a religion. And they perpetuate the widely held belief that value stocks outperform growth stocks over the long term…

But that’s a lie.

And it’s one that could cost investors a hefty price.

Buffett’s Falling Fortune

Successful investing means constant evolution.

This is particularly true as technology continues to gobble up the world.

A strategy that worked 10 years ago isn’t guaranteed to work today. The mechanics – the nuts and bolts – have changed.

I have to constantly make tweaks to my strategies to account for new market phenomena.

Now, Buffett’s fortune is grand. And it’s grander than mine will likely ever be.

But even though he’s a living legend, the aging billionaire is a dying breed.

His value investing approach delivered him almost unfathomable wealth. And he probably touted that he purchased shares only in companies with easy-to-understand operations.

But value investing’s broader return has been underwhelming.

And not just for a year or two. But for far longer than that.

Best Performing Assets

Today, Buffett is no longer the wealthiest person in the world. Instead, he’s sixth on the list.

He’s been leapfrogged by men who have been at the forefront of the world’s changing economy. And I have no doubt that Buffett’s ranking in the world’s most elite club will continue to decline in the years ahead.

The Growth vs. Value Myth

Value stocks were all the rage a couple of months ago… like Tiger King or the return of disposable cameras.

And headlines screamed that it was value stocks’ time to shine!

But that rally fizzled out after a couple of months.

And that has been fairly typical for value stocks over the past few decades. There are brief moments in time when large cap or small cap value stocks win a lap. But, ultimately, they’re trailing far behind in the race.

Just look at the Vanguard Growth ETF (NYSE: VUG) compared with the Vanguard Value ETF (NYSE: VTV) over the past five years…

What most investors don’t realize is that value stocks are sprinters, not marathon runners.

In their minds, it’s the opposite.

During the past three decades, growth stocks have outperformed value stocks… And in the aftermath of the two most recent global crises, this disparity has gotten wider.

The world has changed, and investment portfolios must reflect that.

This is why I’m such an avid proponent of growth stocks.

And you should be too.

There is no better way to build a retirement nest egg than by targeting high-growth companies that are the best in class in their industry. And the data clearly demonstrates that growth stocks are leaving value stocks further and further behind.

So if your portfolio is too heavily weighted in value like Buffett’s, then your retirement is falling further and further behind each year as well.

Here’s to high returns,

Matthew

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