The day of this writing, March 23rd, marks one year when the market hit its pandemic low. Even veteran investors and those with strong stomachs were uneasy, to put it mildly, after watching the S&P 500 plunge 34% in a mere 23 trading days. In the following 365 days, we have seen a swift recovery, including 34 record highs for the S&P 500. What a ride!
The market last year tested our patience and our resolve. Those who buckled up and stayed on board, however, were richly rewarded. Small and value investors had to pull the buckle an extra notch tighter as tech stocks soared at the beginning of the recovery, continuing their long period of outperformance.
One of Greenspring’s core values is to “Trust the Evidence,” which we consistently apply to our investment approach. Solid data shows that smaller companies have outperformed larger companies over time, and relatively inexpensive (value) stocks have outperformed more expensive (growth) stocks. While owning the whole market, Greenspring portfolios tilt towards small and value stocks to capture these premiums. The premiums don’t happen every day, and there can be long stretches of time when we see the opposite be true, which can test even an experienced investor. In fact, from 2009-2019, while value stocks had returns consistent with their historical long-term average [12.9% vs. 12.7%], growth stocks significantly outperformed their historical average [16.3% vs. 9.7%].
The past year is a perfect example of how investors who have been able to put their FOMO aside and stick with the premiums, as they watched others chase tech stocks like Zoom, Amazon, and Tesla higher, are reaping the benefits of their consistent and patient investment approach. The Russell 1000 Value Index has outperformed the Russell 1000 Growth Index by its widest margin since 2001. In the last 12 months [ending 3/23/21], the Russell 1000 Growth Index is 82.39%, while the Russell 2000 Value Index is up 124.56%. The Small/Value premium over Large/Growth stands at an impressive 42.17%.
Anyone who says they could have predicted 365 days ago that we would see 34 record highs in the US stock market over the next year is probably playing armchair quarterback. Greenspring doesn’t know what markets will do in the next 365 days, nor does anyone else. What we do know is that an investor who takes a patient, consistent, data-driven approach that is not based on FOMO is already buckled up and prepared for the next ride.