The concept of Value has been a guiding light for investors for decades. The idea of buying stocks when they are cheap and selling them when they are expensive sounds logical, profitable and easy. However, it ends up being harder than you’d think. The challenge is that the most expensive stocks tend to have the best products, the best management, the best story, and the highest recent share price performance. Humans tend to be both narrative-driven and tend to overweight recent events, making it psychologically easier to own expensive stocks than the cheapest ones.
US Value Performance
The academic evidence for preferring cheap stocks over expensive ones is strong, but as with any investing anomaly, it relies on very long-term performance analysis and is prone to being arbitraged away. Indeed, the classic Value factor, which looks at Price-to-Book-Value, has weakened significantly in the US in recent years. 2010 – 2019 has been described as Value’s “lost decade”, as many analyses show the academic Value factor was near zero or negative in this decade, which is in stark contrast with earlier decades. Many reasons have been proposed for this, ranging from the impact of low interest rates to the different accounting treatment of intangible versus tangible investment. Whatever the reason, the reality is that big tech companies were the winners in this period, and these tend to be expensive on many measures.
It seems that the academic Value factor has struggled from 2020 onwards, too. The continued preeminence of big tech has led to excess Value returns being flat or even negative in the US so far this decade. However, 2025 itself has been positive, with estimates putting the returns to going long the cheapest stocks and shorting the most expensive ones at around 5% this year. This may be the start of a new era for Value in the US, after a long time in the desert.
Historically, the Value effect has been most prominent in smaller companies. Small Value in the US has generated around 3-4% higher returns than Large Growth per annum from 1926 – 2024, even including more recent poor returns to the Value factor. While there are some signs of a recovery in the Value factor, small company returns in the US have lagged larger companies by 4-7% in 2025. US smaller company returns have been trounced by larger companies over the last few years. So…
