In their recent WSJ article titled – How To Understand This Crazy Year And What To Do Now, Ariel’s John Rogers and Melody Hobson discuss the events of 2020 and why they believe that market extremes have become so excessive that now is the time to buy value. Here’s an excerpt from the article:
But where others see pain, we see gains. An amalgamation of powerfully one-sided influences and outcomes is telegraphing the future. What worked over the past decade is unlikely to work over the next. With so many anchored to the here and now, the opportunity to profit from today’s orphaned value stocks is great. In 14 of the last 14 economic recoveries, value led the way, across all sectors.
Moreover, value has performed well in periods when profits and interest rates are both accelerating. Meanwhile, overly pessimistic views for value versus rosy expectations for growth make for easier comparisons.
Ten years from now, we posit, value shares will have trounced growth, and smaller companies will outperform their larger-cap brethren, as the global economy recovers, demand grows, interest rates rise and at the very least, we experience a healthy dose of mean regression. Now is the time to buy value. And keep in mind, when the tables turn, collateral damage is inevitable. There are times when great companies aren’t great stocks. This is one of them.
Just as multiplying two negative numbers creates a positive in math, the swarm of adverse forces acting against value investing appears to be foreshadowing better days ahead.
This point of view might seem counterintuitive during a time when everything is going right for growth stocks. But with history as our guide, the extremes are now so excessive that all of the minuses are beginning to look like one big plus.
You can read the entire article here:
How To Understand This Crazy Year And What To Do Now (John Rogers, Melody Hobson)
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