Stats › Long run returns › Value vs growth
Value against growth
Split the market in two by price. On one side the cheap stocks, the ones trading low against some fundamental anchor, usually book value. On the other side the expensive ones. Over long stretches of history the cheap half has tended to do better than the expensive half, and that gap has a name: the value premium. It's one of the most documented patterns in finance, reproduced across most developed markets and most time periods, which is genuinely unusual for a return pattern.
In the US since 1927 it comes to about 4.0% a year. Sounds like something you could plan around. This page is mostly about why you can't, and the reason is in the distribution rather than the average. In the years value actually won, it won by nearly 15% on average. That means the long run figure is built out of a minority of years doing something dramatic while the majority do nothing or worse. A premium delivered like that is, from inside any given decade, completely indistinguishable from a premium that has stopped existing.
So you'll find the two competing explanations for why the premium exists at all, what would genuinely count as evidence it's gone, and the intangibles argument, which I think is the strongest thing said against the standard measure. One source here, and I want to be upfront that it's an asset manager whose products are built on this premium. The note at the bottom says the same thing more fully. The underlying data is Fama and French's and it's publicly available, so the check is easy to do.
Value stocks outperformed growth stocks by about 4.0% a year in the US since 1927, one of the longest documented return patterns in finance. The premium is extremely lumpy: in the years when value did outperform, the average margin was nearly 15%. That distribution is the whole problem with using it. A premium delivered in occasional very large doses looks, from inside any given decade, indistinguishable from a premium that no longer exists.
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