Value Vs. Growth Stocks -- Which Will Come Out on Top?
Legends of investing, including Benjamin Graham and his disciple Warren Buffett, have long touted the advantages of value investing. Value stocks trade inexpensively compared with corporate measures such as sales, earnings and book value (assets minus liabilities). Historically, they have outperformed growth stocks, which boost earnings and sales faster than their peers. The thinking behind the value strategy is simple: Investors tend to bid up exciting, fast-growing companies to bloated levels and shun boring companies or those going through temporary problems.
When the market eventually comes to its senses and stock prices normalize, value wins. From July 1926 through May 2018, value stocks traded on U.S. stock markets outpaced growth stocks by an annualized 3.9 percentage points.
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