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FYI: Pity the poor value investors. Nurtured on the elegant prose of Benjamin Graham, the folksy humor of Warren Buffett, and the daunting statistical elegance of Fama and French, they’ve languished in the wilderness with fifteen years of excruciating underperformance. What went wrong? Regards, Ted http://www.efficientfrontier.com/ef/701/value.htm
My synopsis of Bill's argument: growth outperforms during periods of decelerating inflation (e.g., the Great Depression), value outperforms during periods of accelerating inflation (e.g., the 1970s) and the latter has been historically more common than the former. Of more relevance to us, the latter condition is more likely in our near-term value than is deflation, so "value investing is slowing rising from its coffin."
Or not. Numbers confuse me but delight Bill (and many of you).
Please note that the referenced Bill Bernstein article was written in 2001. There has been a lot of water both through and over the dam since that time.
To make a quick visual update to the data sets that Bernstein referenced, being lazy, I defaulted to the Periodic Table of Asset Returns format. That’s a much easier task than plowing through a complex set of numerical tables and statistical analyses. Here is a Link to a Prudential presentation that covers the last 20 years:
These charts are terrific for a general overview of the marketplace’s random walk character.
If you perceive a pattern in this data, “you’re a better man than I Gunga Din”. I don’t see patterns, I see complete chaos. The situation is normal. Sometimes the Value groups outdistance the Growth holding strategy. Sometimes the reverse is true.
During the last 20 years the annual inflation rate, on a decade by decade perspective, has dropped from about 3.1% to roughly 1.9%. Since 1913, the long-term average annual inflation rate has been 3.2%. We’ve learned to somewhat control its variability.
Given the chaotic character of the various asset classes over the last two decades, I choose to ignore the Bernstein study, and will remain invested in both Value and Growth oriented mutual funds. Good luck on trying to project a winner based upon inflation rate change subtleties.
Comments
Or not. Numbers confuse me but delight Bill (and many of you).
David
Please note that the referenced Bill Bernstein article was written in 2001. There has been a lot of water both through and over the dam since that time.
To make a quick visual update to the data sets that Bernstein referenced, being lazy, I defaulted to the Periodic Table of Asset Returns format. That’s a much easier task than plowing through a complex set of numerical tables and statistical analyses. Here is a Link to a Prudential presentation that covers the last 20 years:
https://investment.prudential.com/util/common/get?file=1D065355D2CC360385257B7D00536F8A
These charts are terrific for a general overview of the marketplace’s random walk character.
If you perceive a pattern in this data, “you’re a better man than I Gunga Din”. I don’t see patterns, I see complete chaos. The situation is normal. Sometimes the Value groups outdistance the Growth holding strategy. Sometimes the reverse is true.
During the last 20 years the annual inflation rate, on a decade by decade perspective, has dropped from about 3.1% to roughly 1.9%. Since 1913, the long-term average annual inflation rate has been 3.2%. We’ve learned to somewhat control its variability.
Given the chaotic character of the various asset classes over the last two decades, I choose to ignore the Bernstein study, and will remain invested in both Value and Growth oriented mutual funds. Good luck on trying to project a winner based upon inflation rate change subtleties.
Best Wishes.