Is Value Investing Dead?

Dear Reader,


Since 2009 technology, biotechnology and growth stocks in general have outperformed by a wide margin value stocks like financials, energy, consumer staples and consumer discretionary.

Is value investing dead? No. Why? Because like all growth stocks cycles in the past the current growth stocks, namely technology stocks are overvalued and near their peak. Certain comparisons to the Dot Com bubble in 2001 can be drawn. Yes, now the leading growth technology stocks have revenues, while back then most of them did not. But they are trading at lofty valuations. Just look at the most valuable company in the USA - Microsoft. Microsoft is trading at near 9 times Price/Sales and Price/Earnings multiple of 28, which is basically pricing extraordinary growth. To grow in its valuation Microsoft has to grow revenue and profit at 20% for 5 to 10 years. Basically, Microsoft needs to grow like a star startup.

Many other technology companies are pricing in lofty valuations. Value investing will again become the best investing strategy when the next economic recession ensues. And that is not far off. China listed its slowest yearly GDP growth since 27 years, Italy suffered a recession recently, Germany avoided a recession just barely. European new car sales are falling  3.1% year on year up to June 2019. All signals point that we are in the middle of an economic slowdown. Only America is showing above average growth, but soon the tax cuts effect will wear out and the USA economy might still slip into recession in the next 2-3 years. I think Donald Trump will do his utmost to keep the US economy humming until he is reelected in November 2020. However, I think the US economic slowdown will have started in 2020.

Value stocks like financials, consumer staples and traditional pharmaceutical giants should do better in the coming economic malaise, albeit falling less than the overall market and especially technology stocks. But 20-30% difference in performance in a year is still a huge margin. I expect when the next recession comes value stocks will fall by 20-30%, while technology stocks could well drop 40-60% in general.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich