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If Trends Reverse

changing weather

History has shown us that every investment class tends to have its moment in the sun and then rotates out of favor. We’ve spent lots of time talking about the downside risks of chasing growth and tech, but what we haven’t discussed much are the potential advantages of out-of-favor value strategies. That potential upside is an important part of the full-market-cycle story.

A recent article from Dimensional Fund Advisors, Perspective on Premiums, explores the potential for outperformance after a long period of underperformance. Dimensional defines premium as “a return difference between two assets or portfolios.”

Even for us, value enthusiasts for decades, we found the numbers surprising. The article is well-written, detailed and compelling, and worth a read for every serious investor. I won’t do a deep dive here. I’ll just offer a practical summary, in two bullet points:

1) If trends reverse, and the historical value premium reasserts itself, the potential return advantages of value going forward could be life-changing.

2) If trends reverse, and the current elevated prices of growth and tech stocks correct, the potential costs to capital could be devastating.

We can’t know the future, now or ever. Perhaps the dominance of tech stocks will continue, and we’ll move further into an era dominated by a small number of huge tech companies. Perhaps that rise will be interrupted or reversed; newcomers will develop breakthrough technologies that topple today’s leading companies just as Apple replaced Motorola and Nokia; perhaps government oversight will stifle the progress of today’s tech stars, even require the breakup of apparent monopolies. Any bet on a single sector of the market, especially a sector that has outperformed dramatically, is both a potential game changer and a potential disaster.

We pay attention to the evidence. That evidence suggests that time is on our side, that value and price matter, and that cycles will change the leader board again and again. In that context and as investors, we intend to maintain our discipline and stay the course.

We strongly suggest that you read the Dimensional article. If you’d like to discuss markets or investment strategy, a TGS advisor would love to hear from you.


By James S. Hemphill, CFP®, CIMA®, CPWA®/ Managing Director & Chief Investment Strategist

Jim has been a CERTIFIED FINANCIAL PLANNER™ professional since 1982. Jim specializes in complex wealth transfer and retirement transition strategies and coordinates TGS Financial’s investment research initiatives.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by TGS Financial Advisors), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from TGS Financial Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. TGS Financial Advisors is neither a law firm nor a certified public accounting firm and no portion of this article’s content should be construed as legal or accounting advice. A copy of the TGS Financial Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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