One of the biggest debates that has been raging in the investment world for some time now has been the big difference in performance between quality growth stocks and those perceived to be cheap value stocks. The former have soared during the 10-year bull market, while the latter have produced very disappointing returns for their shareholders.
In many ways, this debate is the wrong one. Anyone who has been around the world of investing for any meaningful amount of time will have been told or have read that the way to generate market-beating returns is to buy cheap because valuations eventually mean-revert. This means that cheap shares are supposed to improve in price and expensive ones get cheaper. But cheapness is no guarantee of investing success, and arguably never has been. You can’t ignore the performance of the business behind the cheap share.
Yet buying cheap has acquired legendary status as an investing strategy due to the writings of Benjamin Graham, in his famous books including Security Analysis and The Intelligent Investor. In days gone by when the stock markets were not as well informed and as well followed as they are today, it was much easier to unearth undervalued and unloved stocks that made investors money.