What a kettle of fish! The S&P 500 has fallen some 11.5% so far this year. Even more alarming, many revered investors are posting rotten numbers. For instance, Warren Buffett's Berkshire Hathaway
Are these value-oriented investors showing us that value isn't all it's cracked up to be? Not at all. It's just that:
- Most stock investments don't go up in a straight line. We should all expect ups and downs.
- Many good and even great investments have slumps, which can last months or even years. Boeing
(NYSE:BA), for example, has fallen by 25% this year. Lowe's (NYSE:LOW)lost 27% last year. But do you really think either company is going out of business? Me, neither.
Berkshire has suffered partly because of its investments in the hard-hit financial sector -- it holds, among other names, SunTrust Banks
Value investing is still a solid philosophy. In essence, investors seek a dollar's worth of assets for, say, 50 cents. Even so, value investing has been underperforming the growth-investing approach, in which investors chase quickly growing companies. As of late July, growth stocks were beating value stocks this year by a whopping 8 percentage points.
Yet historically, value has outperformed growth over longer periods. And that's why it's troubling that many investors just will cut their losses and run. Legg Mason, for example, has suffered a major exodus of capital. But if you determine that a particular stock or fund is a good value, and then it drops even further, you're probably looking at a more compelling bargain. It may be time to buy, not sell.
Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway. Legg Mason, Berkshire Hathaway, and American Express are Motley Fool Inside Value selections. Berkshire Hathaway is also a Stock Advisor pick. The Fool owns shares of Legg Mason and American Express. Try our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.