Value Stocks Haven’t Traded This Low Since the Dot-Com Bubble

A total-return measure of value versus growth across developed markets just slumped to its lowest since 2000. That marks almost two decades since shares dubbed inexpensive traded at such depressed levels versus those with the best earnings growth....

When value stocks plunged to similar levels versus growth at the height of the dot-com bubble in 2000, they went on to surge more than 50% against their opposing cohort in the next 12 months, MSCI indexes show....

Structurally, there’s a growing suspicion the value factor may be broken. Technology is evolving so rapidly that it’s turned traditional sectors like financials and industrials into permanent laggards, the argument goes.... In a Bank of America survey from July, just 2% of fund managers who oversee a total of $489 billion expected value to outperform growth in the next 12 months, the least since 2010....

[But] value is backed by one of the longest histories and some of the most academically rigorous research among factors.... [F]rom 1926 through 2018, various metrics of value beat growth by at least 1 percentage point in annualized returns, O’Shaughnessy Asset Management research shows.

– From a 7/24/19 market-analysis piece published by Bloomberg. Read more


What Investors Need to Know About “Regulation Best Interest”

(From a video interview produced by Morningstar.com.)

Host Christine Benz: [Describe] what Regulation Best Interest is about and what its major ramifications are.

Morningstar research analyst Aron Szapiro: In a nutshell, this is the SEC’s attempt to elevate the standards of conduct that broker/dealers have to follow when they’re giving advice to retail customers....

Benz: When you say broker/dealers, I think people outside of the industry might be confused about what you mean.

Szapiro: [There are two main types of financial advisors.] There are broker/dealers who are selling securities, usually on a commission-based or transaction-based model where they’re paid when they make a recommendation and usually paid on commission. That’s in contrast to the Registered Investment Advisor [model], which is generally based on a fee that is in turn based on the assets under management....

Benz: Say, I am a consumer, an individual who works with a financial advisor. What [changes] should I expect to see?

Szapiro: Starting in June of next year, your advisor — [if] you’re working with an advisor who is a representative from a broker/dealer — will say, “Hey, I’m following Regulation Best Interest and I’m acting in your best interest.”

But that doesn’t mean that they can’t have some conflicts of interest. They will have to disclose them to you as a consumer or as an investor — [however, in some instances] disclosure will not be enough…. There are certain bright-lines in the regulation, certain things they [will have to] try to mitigate. You also [will] get a new disclosure called the Customer Relationship Summary that will provide... information on services you’re going to get, fees, etc....

[So it’s] important for people to understand that part of this “best interest” obligation can be satisfied with [a simple] disclosure. And it’s going to be incumbent on you as an investor to look at those disclosures and [decide whether or not to] say, “Okay, I understand the business model [and] I’m comfortable with it.”

– Interview posted on 6/14/19. Watch the video interview (free registration required)


The Investors High

As Jason Zweig shared in Your Money and Your Brain, “The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.”

The problem is that while confidence tends to grow commensurately with portfolio balances, our actual tolerance for risk does not respond in kind.

While markets rise, this is generally a non-issue. After all, what’s risky about investments that are growing? Volatility to the upside is not what most investors lose sleep over, so adding to what’s working and forsaking what isn’t seems safe and reasonable.

It’s only when markets fall that we realize we’ve taken on too much [risk]. Our perception of risk returns to reality, but at that point, it’s too late. Making adjustments after the fact is not a winning approach.

All of this sounds like it has a simple solution. As the saying goes, “Don’t confuse brains with a bull market.” But if it were that easy, investors wouldn’t panic sell. Our perception of risk may be fluid, but our portfolios should not be.

– From a 7/18/19 post by advisor Brendan Mullooly on his blog Your Brain on Stocks. Read more


The Market Went _______ On _______.

Here are [three recent] headlines....

  • “The Dow Loses 33 Points Because the Market Is Getting Pulled in Different Directions”
  • “Stock Market Gains After Fed Removes ‘Patient’ From Policy Statement.”
  • “The Dow Is Falling Because the Jobs Report Might Have Been Too Good”

Surely, these writers can’t be serious.... The total market cap of the S&P 500 is somewhere around $24,000,000,000,000.... To say [on a daily basis] that the market did _______ because of _______ ... seems so far out in left field I can’t even begin to comprehend it....

There is no way to know why $24 trillion+ in capital fluctuates in value on any given day, week or even year.

– From a 7/08/19 post by financial advisor and blogger Ashby Daniels at Retirement Field Guide. Read more