John Rogers: Why Value Investing Isn’t Dead Despite Growth Stock Dominance

In his recent interview with Odd Lots, John Rogers argues that value investing is not dead, despite the prolonged outperformance of growth stocks. He references Warren Buffett’s philosophy of being “greedy when others are fearful” and highlights the cyclical nature of markets.

Rogers sees opportunities in overlooked, undervalued “orphan” stocks, particularly in the small-cap sector, where there is less research and investment bank involvement. He notes a decline in small-cap analysts, which creates inefficiencies for savvy investors to exploit.

Rogers believes that the current market offers significant opportunities to find undervalued companies with strong potential, especially in under-researched areas.

Here’s an excerpt from the interview:

Rogers: I think they believe it’s dead because this period of growth stocks outperforming value stocks has lasted much longer than usual. However, if you read the famous book by Burton Malkiel, A Random Walk Down Wall Street, he explains these bubbles and how they eventually burst.

History shows that these moments of market frenzy don’t last forever. And when you study Warren Buffett, he consistently reminds you to be greedy when others are fearful and fearful when others are greedy. He’s always so consistent with that advice because he understands how easily things can spiral out of control.

When everyone is chasing the hot stock of the moment, those securities become overvalued. Meanwhile, the stocks that get left behind — what I like to call the orphans — are selling at very cheap prices.

These are the opportunities that many people overlook. Eventually, companies will sell at the discounted present value of their cash flows, and if you’re able to acquire them at bargain prices, it can turn out to be a great investment.

These cycles always come to an end, and they typically do when people are convinced that they won’t.

I strongly believe that the rare opportunities to take advantage of inefficiencies in the market lie in the small-cap sector. There’s far less thoughtful, in-depth research being done on smaller stocks, primarily because investment banks don’t get paid as much for working in that space.

As a result, over my 41 years of experience, I’ve witnessed a significant decline in the number of small-cap analysts. The few that remain tend to cover a large number of companies, but only superficially — they’re a mile wide and an inch deep.

This lack of deep analysis creates an opportunity. It allows investors to find inefficiencies in the marketplace where the research isn’t being done properly.

These “orphan” stocks, often overlooked, can sometimes offer magical, hidden nuggets for those willing to dig a little deeper. These opportunities come around from time to time, and I genuinely feel that we’re in a period right now where there’s a lot of potential in the small-cap space.

You can listen to the entire interview here: