Page 33 - DIY Investor Magazine | Issue 40
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 Ian and Lance are firmly of the school of value investing and believe that current UK market valuations, combined with a long overdue reversion to more normal market conditions after a decade of exceptional policy and quantitative easing, provide fertile ground for a rebound.
In their view, starting valuation remains the best predictor of investment returns over time. They also highlight the problem of recency bias, pointing out that, while investors may have got used to it, the success of growth companies through the 2010s is far and away the exception, and not the rule over the long- term.
In fact, lowly valued stocks have outperformed their growth counterparts in every decade bar two in the last 110 years, with the other previous period of outperformance occurring in the 1920s.
For those with shorter memories, the outperformance of value, and the UK more broadly is not without precedence in this decade either. We only have
to look back to the beginning of 2022 to what many saw as a paradigm shift away from US exceptionalism and a reversion to a more even dispersion of returns.
In just over a year, the UK trounced its US counterparts by almost 30%, wiping away years of underperformance, which has only recently been surpassed by the AI driven bonanza we are experiencing today.
As this short period showed, when markets turn they can
turn rapidly, and with the UK slowly digging its way out of the economic doldrums we could once again be closer to that point
than many think.
Andrew Courtney, research analyst, QuotedData
April 2024
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