For most of the last decade, value investing has felt less like a discipline and more like a patience test.
Growth dominated. Multiples expanded. Hype mattered more than cash flow. And every short burst of
value leadership seemed to fade as quickly as it arrived.
Don’t look now, but something has changed. Value has quietly taken a seat at the table. Recent
performance since November tells a story that does not neatly align with traditional market narratives.
Value has outperformed growth even as economic data remains mixed, recession risks linger in the
background, and consensus expectations still favor secular growth themes. This is not how value
typically puts together outperformance. And that is precisely why it matters.
Historically, investors expect value to outperform when the market begins to price in economic
acceleration. Improving growth lifts cyclical earnings expectations and higher rates compress long
duration assets. Capital rotates toward balance sheets, dividends, and tangible cash flows.
However, that is not what we are seeing today. Economic momentum has been uneven. Manufacturing
remains soft. Leading indicators are noisy at best. Yet value has found its footing despite it all. The
reason is not a sudden surge in optimism about growth or a sudden spike in higher rate expectations. It
is something more subtle and arguably more uncomfortable for consensus thinking.
The recent struggles in large cap technology have not been driven by collapsing fundamentals. They
have been driven by expectations.
As artificial intelligence productivity becomes less theoretical and more operational, investors are
beginning to ask harder questions. If artificial intelligence (AI) lowers marginal costs, automates
workflows, and accelerates competition, then who captures the economics? Revenue growth may
persist, but margins and pricing power are no longer assumed to be linear beneficiaries.
In other words, the same innovation that was once viewed as an unambiguous tailwind is now being
scrutinized as a potential source of cannibalization.
This is where value enters the conversation. The valuation gap between value and growth remains
historically wide even after recent moves. In many cases, investors are paying materially different prices
for a dollar of earnings, cash flow, or book value across styles. That gap was easy to ignore when
growth narratives felt inevitable. It becomes harder to dismiss when those narratives face even modest
uncertainty.
Value does not need heroics to outperform from here. It does not require a reacceleration in economic
growth. It does not require inflation to reignite. It does not even require growth stocks to fail.
It simply requires expectations to normalize. Lower starting valuations provide a margin of safety in a
market that has become increasingly sensitive to disappointment. Balance sheets matter more when
capital is no longer free. Dividends matter more when volatility rises. Pricing power matters more when
competition intensifies. These are not new ideas. Graham and Dodd introduced the concept of margin of
safety 92 years ago after all. What is new is the context in which they are being rediscovered.
It is important not to overstate the case. This does not mean that growth is finished or that technology
has lost its relevance. Structural innovation remains real. AI adoption is still early. Long term secular
growth stories do not disappear overnight. It also does not mean that value will lead every quarter or
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every year from here. Style leadership is rarely linear. There will be false starts, and there will be
rotations back and forth.
And it certainly does not mean investors should abandon diversification or attempt to time style cycles
aggressively.
What it does mean is that the market is once again willing to reward fundamentals, discipline, and price
sensitivity. Value is no longer simply the defensive alternative. It is being treated as a legitimate source
of return.
For years, many investors held value exposures primarily as ballast. Something to own in case growth
stumbled. Something that diversified risk rather than drove returns.
Moments like this challenge that narrative.
When value outperforms in an environment that does not obviously favor it, it signals a broader shift in
market psychology. The market is less forgiving of perfection, more attentive to cash flow, and more
skeptical of extrapolation.
Value has not replaced growth at the head of the table. But it has pulled up a chair.
In markets shaped by uncertainty, that seat matters.
Originally posted at Globalt Investments on February 5.
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