Not Every Value Stock Is a Good One

As a sector, value stocks have been hammered. But there are still plenty of good deals out there — you just have to be choosy.

money down the drain photo
(Image credit: Getty Images)

When I fell in love with the stock market many years ago, it was value investing that lured me. I became enthralled by the great value books: Benjamin Graham’s The Intelligent Investor, John Train’s The Money Masters and David Dreman’s Contrarian Investment Strategy. The message was simple: Buy low, sell high (or, better yet, not at all). What excited me was the search for excellent companies shunned by other investors. To find an overlooked stock and keep it through adversity, then to have it recognized and its price soar—now that was a thrill.

Buying growth stocks is not nearly as challenging. Jumping on the Tesla express is not my idea of excitement, and what goes way up often comes way down (see, for example, Enron). Also, the data were on my side: Value stocks clobbered growth stocks. “From 1927 to 2007,” said a JPMorgan research report earlier this year, “buying shares that were cheaper than the rest of the market (value investing) led to very significant outperformance.” The report included a chart showing that if you had put $100 in a value portfolio and $100 in a growth portfolio in 1927, the value portfolio would have grown to be about 40 times more valuable than the growth portfolio by 2007.

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.