When I was a kid, one of my favorite professional athletes was a guy named Denis Savard. He played hockey for the Chicago Blackhawks. I thought Savard would remain the team’s best player forever. But one year, while Savard still seemed invincible, a sports commentator said he was no longer the Blackhawks’ number one scorer. I couldn’t believe it. I was in denial.

Financial academics have long asserted that value stocks win. But fans are starting to see some grey behind the ears. They say the pedigree remains. But value stocks aren’t scoring. At least, that’s a common view.

For the past 23 years, Vanguard’s S&P Index (VFINX) has beaten Vanguard’s Value Index Fund (VIVAX). According to Morningstar, if $10,000 were invested in the S&P 500 on January 1, 1994, it would have grown to $85,999 by October 22, 2017. If it were invested in Vanguard’s Value Index, it would have grown to just $81,135.

How can this be possible? Value stocks are supposed to skate circles around the market. Here’s an example. According to portfoliovisualizer.com, U.S. large-cap stocks averaged a compound annual return of 10.23 percent between 1972 and 1994. In contrast, U.S. large-cap value stocks averaged a compound annual return of 13.15 percent. That’s a massive difference. Over those 23 years, a $10,000 investment would have grown to $103,572 in U.S. large-cap stocks. If it were invested in U.S. large-cap value stocks, it would have ballooned to $171,265.

But the 23 years that followed saw something different. U.S. large-cap stocks averaged a compound annual return of 9.38 percent. U.S. large-cap value stocks averaged a compound annual return of just 9.10 percent.

Value stocks might have lost some steam. But don’t write them off. Value stocks are cheaper, compared to growth stocks, than at almost any time in history. Columbia finance professor, Kent Daniel, agrees. In an interview with Mark Hulbert, Daniel said the typical value stock is usually one-third cheaper than the typical growth stock when comparing prices related to corporate earnings. Today, however, he says the typical value stock is fifty percent cheaper compared to the typical growth stock.

There’s also something else. Disciplined, diversified investors in value stocks might have beaten the market over the past 23 years, after all. Large-cap value stocks lagged, but small and medium-sized value stocks didn’t.

According to portfoliovisualizer.com, U.S. stocks averaged a compound annual return of 9.4 percent between January 1994 and September 2017. Investors that split a portfolio between U.S. large-cap value, medium-cap value and small-cap value stocks would have averaged a compound annual return of 10.52 percent if they rebalanced once a year.

Value stocks, it seems, were still scoring points. It’s even more obvious when we compare portfolios allocated to equal-size components. For example, take a portfolio split evenly between U.S. large, medium and small-cap stocks. If it were rebalanced annually, it would have averaged a compound annual return of 10.22 percent between 1994 and September 2017. (See portfolio 2 below).

If it were invested in U.S. large, medium and small-sized growth stocks it would have averaged a compound annual return of 9.79 percent. (See portfolio 3 below).

Value stocks triumphed. A portfolio invested in large, medium and small-sized value stocks would have averaged a compound annual return of 10.52 percent. (See portfolio 1 below).

Value Stocks Won When Many Thought They Didn’t
1994-2017

Value Stocks Won When Many Thought They Didn’t 1994-2017

I’m not saying you should ditch growth stocks or stockpile money into value stocks. Never write off an asset class, style or geographic sector. Diversification, after all, is the only free investment lunch you’re likely going to get.

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and The Global Expatriate's Guide to Investing: From Millionaire Teacher to Millionaire Expat.