“The early 2017 peak in growth data and inflation expectations also marked the end of outperformance for the value factor, which has since faded again,” they wrote. “The most likely catalyst for an extended period of meaningful value outperformance is an acceleration in economic activity, either as a result of fiscal stimulus or productivity gains in the near term or simply at the start of the next economic cycle.”
Longer-term, the biggest factor working in value’s favor is the mirror image of mankind’s more enduring investing flaw: the tendency for biases and emotion to affect the asset allocation process.
“Among the possible explanations for the historical value effect, one major theme is the tendency of humans to overprice growth profiles and other stock attributes,” wrote Snider. “Even with the growth of assets devoted to quantitative and passive strategies, the presence of humans with different investment processes, risk tolerances, return targets, and psychological biases suggests that some degree of the value effect will persist.”
Which brings to mind this pearl of wisdom from billionaire investor and Donald Trump adviser Carl Icahn’s twitter bio: “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.”
This article was provided by Bloomberg News.