Irrational exuberance in growth versus value

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Dr Sam Wylie, Principal Fellow of the Melbourne Business School highlights that it is a good time to remember the lessons of history about growth shares versus value shares. The graph below, shows on average, across stocks and through time, value stocks outperform growth stocks by a lot. That is not only true for US stocks but around the world. There is no bulletproof theoretical explanation for why value stocks outperform growth stocks in nearly every country and through time (on average), but it is an undeniable regularity in the data. The best explanation (to simplify somewhat) is that investors get too excited about stocks in new glamorous industries that are expected to deliver large dividends in the future. Those stocks on average don’t deliver the expected dividends and then growth stocks underperform. Investors pay too much for stocks that promise large growth in dividends. Click on the (VIEW LINK) for more on growth versus value


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