Hidden Gems and the Hottest Trends

August 2024

When it comes to investing, do you prefer a hidden gem or the hottest trend? Stocks are often divided into two types: value-priced (hidden gems) and growth-priced (hot trends). Value stocks are typically undervalued by the market, often due to temporary challenges or being overlooked, and offer strong potential for long-term returns. In contrast, growth stocks are associated with companies expected to grow at an above-average rate compared to others.

Historically, value has outperformed growth more frequently and with an average outperformance of about four percentage points per year, in US markets. At Rogowski Wealth Management, we favor value stocks in our client portfolios, a strategy famously championed by Warren Buffett, the most renowned value investor. While growth has outperformed value in recent years (and often fills news headlines), the rising cost of growth stocks makes it more sensible than ever to be overweight to value. Additionally, value stocks are highly sensitive to interest rates, meaning they could perform well as the Federal Reserve begins to lower interest rates in September.

It’s important to note that value stocks don't need growth stocks to decline to perform well; both can deliver positive returns in the same year. However, when value stocks perform well, they often deliver substantial gains (shown below), making patience a worthwhile strategy for investors.

Average Annual Returns for US Value and Growth

Years 1927-2023