South Africa: After a Decade of Growth Stock Supremacy, Value Stocks Could Now Lead the Charge

analysis

Value investing is nothing more or less than buying investments on sale. But this traditional investment strategy has been left in the dust by thinning margins that have boosted growth stocks, especially in the tech sector. That could now be changing.

The origins of value investing go back to research by Benjamin Graham and David Dodd in the 1920s, when both men began teaching at Columbia Business School. Many of the concepts of value investing are described in their book, Security Analysis, and in Graham's book, The Intelligent Investor. Warren Buffett, the most successful practitioner of value investing, was a student of Graham's at Columbia.

Value investing starts from the premise that an investor who buys a company's shares owns part of the business. While this may seem obvious, many investors "play the market" without regard to the underlying fundamentals of the companies they own, says financial magazine Forbes.

In the words of Buffett: "It is better to be approximately right than precisely wrong."

Over multiple decades, the traditional value approach of buying cheap stocks has worked remarkably well. Over the past decade, not so much.

The problem, according to investment management company Schroders, is that since the...

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