These figures are from last Friday:
What do you notice?
It marked the end of a week that could turn out to be a major turning point.
I don’t often get that lucky, but when I elected to write about the merits of value investing last week, little did I know that it would be the best week for value investing, relative to momentum/growth stocks… since 2008!
And this, showing how almost all of it occurred during last week’s trading:
Source: Chris Cole, on Twitter
Or shown dramatically here, on Koyfin (growth = blue, momentum = orange, value = blue):
What a reversal!
Buy the (chicken) dippers would call me out though, saying that for a decade now growth has proven and re-proven its preferable nature as an investment, and that this represents a great opportunity to BTFD – buy the five-hundredth dip.
The thing is, buy the dip factor investing will work for 10-15 years and then bankrupt you.
A 100-year analysis shows that human nature drives these factor cycles over decades, not years.
As investors we must be flexible and we must be resilient.
What concerns me though is this.
A resurgence of value stocks means that investors are once again choosing to look at valuations, look at what they’re paying for earnings, and are starting to think that they might be able to find very attractive value in beaten-down cash generators like Shell, Peugeot or RBS.
Where will they take this idea? Where does it lead?
Well once you start reapplying valuation analysis, first you seek profits from the cheap ones, but as the idea spreads, investors will begin to question some of the feistier valuations attached to growth stocks.
And that would probably bring whole markets down with it.
If this trend continues, funds the world over will have to completely alter their asset allocation if they don’t want to underperform. A global asset management industry shift from growth to value could drive some seriously powerful returns in value stocks, and some seriously devastating losses from growth investors.
That’s how tech fell 80% after the bubble burst in 2000-2002. That’s why I find this chart of the US tech sector’s performance so terrifying:
That 80%+ decline in the tech sector looks tiny compared to what’s happened since 2008.
Things which seem certain and foregone are not. Tech cannot go on like this forever, just as oil wasn’t going to stay negative or below 20 for long. Remember the capital cycle! Remember Capital Returns!
Just take a look at this for a turnaround story in the WTI oil price, after many commentators saw the end.
Negative prices were accompanied by some seriously gloomy long-term forecasts, as with every extreme moment in any market. Peaks are troughs are marked by this time it’s different proclamations, with very reasonable and excellent arguments, which are wrong anyway.
This corona-crash is most likely not over.
What we have learned is that the market forces are currently working in overdrive.
The crash and rally so far have been spectacular – gravity defying in extent and speed.
We’ve just had the best 50-day period in history for a whole heap of risk assets, while countries across the world are reporting worst-ever months in their economic outputs.
Perhaps a second leg down will not come, and everything will be great forever.
But if it does, all we know from the last few months is that it will not be gentle. 2020 is not doing “gentle”.
John Authers (who is, I’ve decided, the man), wrote this: “Manufacturing CEOs say “green shoots” and investors are pricing in a jungle of growth.”
We have euphoria, we have a resurgence of value-appreciation, and we have economic collapse. It’s your move. Protect your savings. Choose the next cycle, not the last one.
Choose green energy not fossil fuels. Choose value over growth. Choose long-term wealth. Choose Southbank.
And watch the odd epic film too!
Best for now,
Editor, UK Uncensored