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Three Things: October 7, 2019

October 07, 2019
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This week I was inspired to share some perspective on Value vs. Growth Investing, an Instagram post, and an invitation to attend a webcast hosted by a Nobel Prize-Winning Economist later this month.


Adam Harding, CFP / Smartvestor Pro

If this is your first time receiving this email, here's some background: "Three Things" is a quick weekly email to recap some things that stood out to me in the previous week. I try to find inspiration in articles, videos, images, and anything else that I can tie into a financial planning or investment tip. Let me know if there's something you'd like to see covered, or if you happen to spot something interesting which you'd like to share. I hope you find this insightful!

Thing #1: 

Article: Value Judgments - Viewing the Premium's Performance Through History's Lens

By: Dimensional

Link: Comparing Value and Growth Stocks

When investing, we often look at relative price to evaluate how expensive a stock is compared to its earnings. Traditionally, Value stocks trade at a low relative price and Growth stocks trade at a high relative price. Economists Eugene Fama and Kenneth French (University of Chicago) pioneered research which identified a historical propensity for value stocks to outperform growth (famous investors like Warren Buffett also famously deploy a 'value bias'). However, over the last 10 years this has not been the case.

The graphic below shows the annualized return of both Growth and Value stocks over the last 10 years and also since 1926. As you can see, the last 10 years have been consistent with long run returns for Value stocks, but the 10 year returns of Growth stocks have greatly exceeded their long run average. We know that past performance is not indicative of future returns, but this differential is worth noting. 

Key Takeaway: 

The theoretical support for value investing is longstanding—paying a lower price means a higher expected return. However, realized returns are volatile. A 10-year negative premium, while not expected, is not unusual

Humans famously chase return, but we don't want to aggressively pursue only what's done well recently. Your mix of Growth and Value stocks should be based on a long term plan. 

Thing #2: 

Instagram Quote
Tonny Stark

If you can't manage $1,000 you can't manage $10,000. 

You don't suddenly learn how to handle money by amassing more of it. This is why a lot of lottery winners lose it all. 

Financial literacy is not a side effect of wealth. Wealth is a side effect of financial literacy. 

... We see stories in the news of broke professional athletes, lottery winners, and celebrities --they were given a TON of money but had no discipline, made some bad decisions, and perhaps were taken advantage of by a friends, family, and advisors.

Unfortunately, this phenomenon is not completely restricted to the ultra wealthy.  I've seen the same problems arise from small business owners who experience success, or a widow/widower having received a big life insurance payout. 

Key Takeaway: 

Everyone needs financial literacy, even if they have trusted individuals serving as advisors.... That's part of the reason I started this weekly series of emails; I hope it's helping build your level of comfort with these concepts. 

Thing #3: 

Webcast: Insights from a Thought Leader with Eugene Fama

Source: Dimensional
When: Wednesday October 30th @ 3pm CST

I attend a lot of webinars... A LOT. (Particularly in Q4 when my CERTIFIED FINANCIAL PLANNERTM continuing education deadline is approaching)

One which I'm attending is later this month on Oct. 30th at 3pm CST, and it's open to investors like yourself. 

Here's the invite:

Please join Eugene Fama, Nobel laureate, Professor of Finance at the University of Chicago Booth School of Business, and Dimensional founding Director, on Wednesday, October 30, at 3:00 pm CT for a conversation about his lifetime of work in financial economics and the impact of the discipline on the asset management industry. He also will discuss research developments and considerations for applying the insights to managing live portfolios.

The webcast will cover:

• The evolution of asset pricing research and the benefits accruing to investors

• Key milestones in identifying the drivers of expected returns

• The challenges of interpreting, testing, and implementing research

• The recent performance of the premiums in equity markets

To register, click here.

For more information, click here.

That’s all for now, have great week!


Adam Harding, CFP®