“Value” Or “Growth”. The Demise Of Value Investing?

In the last five years we have witnessed a debate that in my opinion is incorrect and in some cases deliberately manipulated. The dilemma “Value” against “Growth” and the demonization of the former in the face of bad recurring market performance.

Value is the strategy in which the selection of stocks ​​is based on analyzing the fundamentals and finding those companies that trade at cheap multiples and with high potential for revaluation.  Growth is the strategy that looks for companies with high growth that deserve a higher valuation for being in a period of a strong increase in margins and sales.

Any reader accustomed to investing can understand that they are not opposing or exclusive philosophies and that there is nothing wrong with any of them. However, in the decade of financial repression that we are living in, many minority investors have signed up for the “value” label, confusing the philosophy with “buying anything that has fallen a lot and closing your eyes waiting for it to rise”. 

One of the inconsistencies in the analysis of the performance of “value” vs “growth” strategies is found in the definition of those sectors. If we analyze the stock market behavior of both groups in the last five years, the “value” group is at historical lows with respect to “growth”. However, a slower analysis questions this brutal divergence.

Investment banks continue to consider semi-state-owned integrated oil companies or banks as “value” when they should never have been included in that category. The vast majority of these stocks, particularly in Europe, are simply “ex-growth” with captive assets that lose value with technological change and competition. Value Traps. In the same way, showing the spectacular stock market performance of the growth sector when it is explained by six technology stocks ​​can lead to errors, especially when one speaks of “growth” in Europe or LatAm, where there are very few real “growth” stocks.

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