An interesting study from Morningstar shows that the relative outperformance of large “growth” stocks versus large “value” stocks may have reached an important apex in May of this year. The analysis goes back to 1937 and shows that the two other times in which this relative performance reached such an extreme were November of 1939 and February of 2000.
Much of what we do as financial planners involves forward-looking assumptions around things such as inflation, the economy, and financial market returns. One might question how, as planners, we can have any real confidence in making forward projections in the face of high uncertainty, particularly the current environment.
There is a long-running investment industry debate about which investment strategy is better, value stock investing or growth stock investing. “Value” stocks have traditionally been defined as stocks with low valuations (e.g. low price-to-earnings ratios). “Growth” stocks have been defined as companies with above average revenue and earnings growth.