brewer12345 said:
Yeah, but since everyone is talking about it and doing it, is the value premium going away?
You would think so, but the S&P600 Small-cap Value ETF (IJS) just set yet another 52-week high. I already took some cash off the table last fall and now it's probably time to cash out some more.
Slarty said:
If you look at Value stocks from about 1995 through 2000 then you'd have missed some incredible returns by not investing in the growth stocks. Value stocks were way out of favor during this period and they did not out perform growth stocks at all.
And how long did we have to wait before 1995 for growth to "catch up"? With multi-decade performance of the value premium we would've ridden out the 1995-2000 "short-term anomaly". And although I (among many others) started to move from value to growth in the late '90s, we moved right back into value a few years later.
If value turned in stinko performance for about three years then I might be tempted to move out of it. But its demise has been predicted for at least the last two years and when the inevitable RTM occurs I wonder if it'll be down or just sideways. Either way Siegel & I will be reinvesting those dividends.
Another case in point, admittedly an isolated one. Brewer pointed out that Eagle Shipping (EGLE) has a huge dividend, low debt, and a low price. It's only been public for about seven months (the lockup expiration is presumably pressuring the price) and it's not followed by many analysts. When you look at the numbers it's a classic value stock trading near its 52-week low. The technicals look great and I've been buying in. However in the last couple months it's lost over 15% of its price to get there. Its fundamentals make it the kind of stock I would've bought at $14, thought I'd missed the boat, and am happily buying at $12. I'll hold it for at least a couple years and those dividends will also be reinvested.
Contrast that with Evergreen Solar (ESLR). I came across them in Peter Lynch fashion while buying their photovoltaic panels. They're getting a great boost from German & Japanese demand (govt subsidies) and the U.S. federal tax credits will apply upward pressure for as long as the next two years. Good thing, too, because the company sucks. It has low margins & no profits, and it's not expected to turn profitable for at least another year. The stock price has more than doubled in the last year (it's about to triple), Cramer gave it an overnight personal 10% boost a couple weeks ago, and it's gone up over 5% in the weeks since I've started buying. Yet I wouldn't keep this stock without a tight sell stop because when the subsidies run out and everyone's bought their commodity PV installation, the party will come crashing to a halt. I'll ride it until it drops and then run screaming for the exits like the rest of the lemmings expert traders.
That's one overlooked feature about the value premium. Its stocks are basically sound companies that frequently pay a dividend, the investments are easy to sleep on, and although they're nice to look at they don't need constant watching.