Value investing first came from Warren Buffett's teacher, Graham. In the early days of Warren Buffett, it was also this investment style.
Value style refers to the pursuit of buying when the price of individual stocks is lower than the intrinsic value of the enterprise, or buying when individual stocks are relatively undervalued and within a reasonable valuation range, waiting for value to return; Valuations are important, and the overall valuation of the portfolio is low.
In contrast, the growth style is biased towards investing in growth companies that are expected to grow faster than the industry/market average, and has a higher tolerance for valuation, believing that even if it is overvalued in the short term, high growth will bring prices back to value.
In my opinion, value style or growth style, we can't simply say "which is better or worse", we must adjust our investment style according to the changes in market style. In 2024, the value style will prevail, and investment can be appropriately increased in the second half of the year.
First, the style of A-shares has rotation!
Historically, the value and growth style of A-shares has usually switched every 2-3 years or so.
In 2012, the value style performed well. At that time, the bank even said that it was embarrassing to make money; From 2014 to 2015, the growth style performed well, and 2015 was a big bull market for small-cap growth stocks.
Further on, from 2016 to early 2018, the value style performed well. Banks rose by 60% and insurance by 100%, which is respected as "core assets"; Growth stocks were broadly down over the same period.
In 2019-2020, the growth style was relatively strong, and the performance of banks, real estate insurance was poor, also known as the "three fools", and now, the wheel of the situation has rotated again.
So when is the value style strong and when the growth style is strong?
There is a simple rule, if the real economy is better and beneficial to the traditional industry, the value style performance will be stronger; On the contrary, in the face of an economic downturn, usually the traditional industries will be relatively sluggish, if the country adopts a loose monetary policy to stimulate the economy, then, the extra money tends to flow to some conceptual and growth industries.
Second, in 2024, why am I bullish on the value style?
Many investors may not have noticed that since the beginning of this year, the value style has secretly begun to take the lead. In my opinion, there are two factors that should not be overlooked:
- On the one hand, the weak economic recovery has basically become the market consensus, and the pro-cyclical sector, that is, the value style, may perform better.
- On the other hand, the value style has been adjusted for many years, and the negative factors have been basically reflected in the stock price, and there is more room for subsequent marginal improvement.
Of course, being optimistic about the value style does not mean that you want to stud. We must be rational to see that it may be difficult for the value style to reach the peak of the previous period in the short term. After all, while the most difficult time for real estate fundamentals should be in the past, it is unlikely to return to its former glory. In addition, the Fed cut interest rates without using the value style.
In my opinion, we should choose high-quality value-style theme funds, appropriately increase the layout, adopt a value + growth portfolio, and seek a more stable portfolio. The value style is like armor, and the growth style is like Mao, which integrates offense and defense, and the survival rate on the battlefield will be higher.
From a valuation perspective, the median earnings ratio (TTM) of all A-share markets is about 34 times, which has fallen back to a relatively low historical level, and there are many areas that contain good opportunities. The correction in the net value of the value style index is a good opportunity to get on the bus.