Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 519

Is value investing dead?

A useful exercise as an investor is to observe the media and pop culture for trends that are increasingly popular and others which are falling out of fashion. It can help identify sectors which may be overly hot and those that are being ignored, perhaps unjustifiably. For instance, many people like to look at auction listings to gauge the state of the Australian residential property market. Yet, I’ve found it just as helpful to watch how many pages there are in the Domain property magazine in the Australian Financial Review – more pages equal more listings and popularity. And the state of the property reality shows on TV – more shows and higher ratings normally equates to a hotter property sector.

Recently, I’ve noticed a trend in the investment world: the supremacy of growth investing and the obliteration of value investing, and investors. Now, you might say: that’s not news. We all know about the meme stocks which went to the moon in 2020-2021, and the ‘Magnificent Seven’ stocks which have driven most of the S&P 500’s gains this year.

Yet, the extent of investors’ love affair with growth investing has seeped into some intriguing areas. I’m a bookworm and one thing that’s struck me is that popular investment books in recent years are all about growth investing. Think of Terry Smith ‘Investing for Growth’, Christopher Mayer’s ‘100 Baggers’, Lawrence Cunningham’s ‘Quality Investing’, and anything about Warren Buffett and Charlie Munger because they’ve been adopted as growth investors too. On the flip side, how many books on value investing have become bestsellers over the past decade? I can’t think of one.

You can look elsewhere to detect this trend too. I’ve scrolled through podcasts, and my best guess is there’s at least 30 podcasts on growth investing versus one on value investing.

It’s not just reflected in the media either. The number of investment managers with a value investing style has plummeted over the past 15 years. In Australia, there aren’t many left.

I want to explore whether value investing is dead, or if it isn’t, whether there may be an opportunity for contrarian investors to exploit.

Value’s long period in the shade

Let’s first look at the extent of growth investing’s outperformance versus value of late. The chart below of the US market provides some context. Over the past 16 years, growth has outperformed value by 12% per year. That’s enormous. The outperformance started in February 2007, it survived the GFC with many value stocks getting hammered, before value picked up in 2011-2012 as the commodities boom peaked, and then growth got rolling especially into 2021.

The chart tells us a few other things. Over the long term, value has tended to outdo growth. And it’s true that value itself got bubbly heading into 2007, and again later in 2012. Since then, though, it’s been one-way traffic and value investors have been hammered.

The trend started to reverse last year, although this year, growth investors have regained the ascendancy. For instance, the ASX has seen stocks valued on higher earnings multiples performing markedly better than those with lower valuations in 2023.

Where are all the value managers?

The ascendancy of growth investing was brought home to your author at an investor update from Talaria Capital, a global value firm based in Australia.

Co-CIO Hugh Selby-Smith spoke of how few value investing stablemates are left in Australia. He says most independent investment firms with a value investing bias have either switched to being ‘pragmatic’ investors or they’ve gone out of business. Selby-Smith says he has some value investing friends at funds within large institutions, but these funds are often ignored, and are certainly less resourced than their growth counterparts.

The question I put to Selby-Smith is how Talaria has managed to sidestep the carnage of other value investment funds. And he talked extensively about process and discipline. For 17 years, Talaria has largely adopted the same process. For them, it’s all about finding stocks that generate substantial free cashflow, have rock-solid balance sheets, and can be purchased at discounts to fair value.

Much of Talaria’s investment process is about eliminating behavioural biases in generating stock ideas and even for stocks that are currently in the portfolio. The firm conducts ‘anti-mortems’ that involve taking the opposite side of a stock idea to make sure the team view it through an objective lens.

Selby-Smith argues this process has helped the firm to largely avoid so-called ‘value traps’. These traps are the bane of value investors as they involve stocks that normally have fallen in price and seem cheap though are of questionable quality and, for a variety of reasons, decrease in price further after purchase.

I think there are two other reasons for Talaria’s success as a value manager. It’s had consistent performance over short-and-long-term periods. It’s also had retail investors who’ve hung around as they’ve understood the company’s investment philosophy and process.

Talaria has been the rare exception where others have fallen on harder times.

Time for a value comeback?

Historically, investment styles run in and out of favour, about every 10 to 15 years. Currently, growth is the top dog. Yet, there may be signs that we might be nearing a top. The decline in numbers of value funds/managers, the rise and rise of books and investment letters on growth investing, the number of ‘star’ fund managers topping performance rankings who are growth managers (which probably peaked in 2021), and the bifurcation in stock markets where 7 stocks on the S&P 500 dominate returns yet are on forward price-to-earnings ratios of double the rest of the market (30x vs 15x).

A turn in the fortunes of value investing would have significant implications for listed companies and investors. What could be the trigger for a turnaround? One candidate could be inflation. Historically, value stocks have handsomely beaten growth stocks during periods of high inflation.

It’s impossible to accurately forecast the future though if history is any guide, any turnaround in value stocks is likely to prove both sharp and long lasting.

 

James Gruber is an Assistant Editor for Firstlinks and Morningstar.com.au. This article is general information.

 

  •   26 July 2023
  • 3
  •      
  •   

RELATED ARTICLES

Three factors shape whether we are at the bottom yet

Changing landscape of US large and mid caps

Should you be a value or growth investor?

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Latest Updates

Fixed interest

Higher yields are creating opportunities in global bonds

Bond markets are adjusting to a new reality, but not in the ways investors expect. With markets repricing and capital competing for attention, investors may need to rethink where resilience and opportunity lie. 

Economy

Are we in a recession?

What if the warning signs are already everywhere? From supermarket aisles to company failures, investors are being bombarded with recession signals. But most face a different risk that can be just as dangerous for portfolios. 

SMSF strategies

Meg on SMSFs - Division 296 actuarial certificates

The tax bill might be yours, but the event that caused it may not be. A key Division 296 calculation can sometimes attribute earnings in ways that many SMSF trustees won't instinctively expect or fully appreciate.

Property

The first impact of negative gearing reform is not the tax bill

Negative gearing changes formally begin in 2027, but the first consequences may already be here. A subtle shift is quietly influencing who can borrow, how much they can access and which property strategies still stack up.

Economy

The oil market is running out of easy answers

The biggest threat to markets may not be what investors are watching. The numbers have stopped adding up and supply is harder to measure, with forecasts becoming simple guesses. A more fragile reality is being masked.

Investment strategies

The state of investor knowledge in Australia

Australians are investing more than ever, yet a surprising divide is emerging between those building wealth effectively and those making costly mistakes. Surprisingly, the gap has little to do with income, age or starting capital.

Taxation

Complexity and capital gains

A case study shows that the ‘30% minimum CGT’ is a poorly conceived tax that adds significant complexity to an already over-complex system. A less complicated model would create a much fairer progressive tax scale.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.