Value outperformed Growth by 110% during the Tech Wreck!

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Value outperformed Growth by 110% during the Tech Wreck!

Over the last few months Value, as it is generally defined, has begun to outperform Growth, as it is generally defined. Now don’t get me started on all the ways terms like Value and Growth get mis-represented by the market. That is not my purpose here. Also, I do not want to give the impression that Berkshire Hathaway is the best way to generate Value exposure right now but I do think we can all agree that Berkshire Hathaway was a great Value proxy during the ‘Teck Wreck’, which began almost 21 years ago.

They say history doesn’t repeat but that it does often rhyme. There are many reasons to think that the current period is remarkably similar to the period leading up to the ‘Teck Wreck’, particularly in terms of Valuations, Retail speculative participation, and Leverage in the financial system. Among other things like the number of companies going public that generate zero profits. There are many ways you can look at it…..Here’s one;

So how did Value do during the ‘Teck Wreck’?

I’ve determined the ‘Teck Wreck’ as the period from what, at the time was the all-time high for the Nasdaq 100, in March 2000 and the bear market low for the Nasdaq 100 in October 2002. A period of roughly 18 months. The graph below shows percentage returns for Berkshire Hathaway B (BRKB) shares in purple and the Nasdaq 100 (QQQ) in blue.

Berkshire Hathaway (Value) gained 27.62% during the period, while the Nasdaq 100 (Growth) lost 82.76%. Value outperformed so-called ‘Growth’ by 110.38% during the period.  

I’m not window dressing either. Berkshire Hathaway (BRKB) outperformed the Nasdaq 100 by more than 290% by the time to the top went in, in late 2007.

Most of you will be surprised by this for one of two reasons….Either you’re too young to remember it which means you most likely don’t believe in Value investing…..Or, you do remember it but you don’t remember enjoying decent returns during that 18 month period because most of your investment exposure (pensions, etc) was in the areas that got hurt the worst.

It is not going to be different this time. It never is!

David Flynn

Chief Investment Strategist and Director

dflynn@baggot.ie

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