Yesterday, I told you that we are on the cusp of a major shift in the markets… where value is getting ready to take the lead over growth for the next five to 10 years.
I also said this shift could happen sooner than you think. I believe we are approaching a major blow-off top… likely within the next several months.
You need to start doing it BEFORE the bull market ends.
Investing legend Warren Buffett gave a speech in 1984 called, “The Superinvestors of Graham-and-Doddsville.” It chronicles the record of investors who worked for and learned from Benjamin Graham, the father of value investing.
One was Walter Schloss, who never went to college, but took a night course from Graham.
Schloss made roughly 21% per year over a stretch of more than 28 years, when the S&P 500 gained just 8.4% a year. During that time, the S&P 500’s worst performance was in 1974, when it fell 26.6%. It was a brutal year for the market, but Schloss was down a mere 6.2% that year.
Buffett also mentioned value-investing firm Tweedy, Browne. It made 20% a year over a period of nearly 16 years, when the S&P 500 returned just 7% a year. Tweedy, Browne gained 1.5% in 1974 (the year the broad market fell 26.6%).
Buffett related the records of five more “Graham-and-Doddsville” value investors. Not all of them outperformed in 1974, but they all trounced the overall market by a wide margin over periods of more than a decade.
A more recent study by Bank of America Merrill Lynch looked at the 90 years between 1926 to 2016, using another value/growth data set by economists Eugene Fama and Kenneth French. The cheapest stocks made 17% per year, while the most expensive growth stocks made just 12.8% per year – a huge difference when compounded over the long term.
Importantly, the data on growth versus value during bad times is mixed…
As the Wall Street Journal reported in July…
In bear markets before 1970, for example, the 50% of stocks nearest the growth end of the spectrum outperformed the 50% at the value end by an annualized average of 3.8 percentage points.
In the bear markets of the subsequent four decades, however, it was just the opposite, with value beating growth by an annualized average of 10.7 percentage points.
The current decade appears to be reverting to the pre-1970 pattern, with value lagging behind growth in both the 2011 and 2015-16 bear markets.
Again… I believe we’re on the cusp of a huge shift back to the outperformance of value during the next bear market. It’s worth pointing out that value beat growth by an astounding 32% annualized from the dot-com top in early 2000 to the bottom in October 2002. The current market environment smells a lot like that period to me, even if it is just one data point.
So, that being the case, I would submit to you the following…
- If you want to avoid the carnage of the next few years, become a value investor right now.
- If you want to maximize the performance of your capital over your lifetime, become a value investor right now.
- If you want to take less risk, sleep better, and make more money in stocks, become a value investor right now.
History suggests that value investing is about to shine brighter than it has in nearly two decades. It has never underperformed growth investing for this long… So it’s like a giant rubber band that has been stretched further than ever before.
The market action at the end of last year suggests value is already making a comeback. From October 1 to December 31, the Russell 3000 Growth Index was down about 16.6%, while the Russell 3000 Value Index was down about 12.8%.
The market is telling us that a much bigger shift between growth and value is likely in the next few years…
And that’s why you should get in this mindset now. Value investing naturally prepares you for bad times by discouraging you from buying what’s popular and expensive. It encourages patience and discipline – exactly what’s been lacking in the market for most of the past decade. You can’t predict bear markets, but you can prepare for them by being a value investor.
My chief research officer Mike Barrett and I have that kind of discipline. And recently, we’ve found great value in a handful of different industries…
In the past several months, we’ve recommended a pipeline company, an old chemical company, and a shipping company – classic Graham value stocks.
We waited more than a year to recommend one stock – until it finally got cheap enough for our liking. We recommended shares in August, and it’s already up 39%. We think it’ll double over the next few years.
And with gold cheap relative to stocks, we continue to recommend investing in the best business in the global mining space, bar none…
It owns a royalty-like income stream on millions of ounces of gold, silver, platinum, and palladium above the ground.
You won’t find a better business model in the gold mining space. And you won’t find better downside protection, bigger (realistic) upside, or a better management team. This stock is trading at cheap cyclical lows and is ready to roar over the next five to 10 years. I believe the shift to value will send it up 10 to 20 times current levels as it continues to pay rising dividend streams.
I can’t predict the future, and I have yet to meet anyone who could. But I’ve closely studied the past and the present, and I know two things for sure: where we stand and what to do about it.
Value investing is hands down the best way to make a fortune in the stock market.
If you hope to outperform over the long term, this is an ideal time to own stellar businesses at reasonable prices… before this shift changes everything you thought you knew about making money in the markets.
Bill Bonner went to law school with Fed Chair Jerome Powell... Co-authored 3 New York Times Best-sellers... And is one of America's most successful entrepreneurs. Bonner's made 3 big macro-economic predictions in his 40-year career, all of which came true. Now he's issuing his 4th and Final Warning. 2023 could be a difficult year for you and your money. See Bonner's warning and 4 recommended steps here...
Source: Daily Wealth