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All set for a value revolution?

We’ve seen how technological revolutions leave their mark on the stock market. And they tend to create winners and losers.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Nearly a century ago the world witnessed the golden age of oil, automobiles, and mass production. A time when the manufacturing of cars and everything that goes with them, like metal and rubber, flourished.

There’s theory connecting this time in history with what we’re seeing right now – both represent a revolution in technology.

The theory goes that these times are when the adoption of new technologies is just getting started and where growth of the previous era reaches its peak.

Today’s revolution is driven by communication and IT, including the take up of the internet and the new abundance of mobile devices.

The smartphone is a key player, it uses technology that’s been developed since the 1970s, including computer processing, touch screens, and operating systems. But the use of smartphones has risen exponentially over the past decade helping the likes of Apple, Facebook and Google grow impressively.

Value – value investors look for shares that are trading for less than their intrinsic worth. This could be because the investor thinks the market is overly pessimistic about its future profits, or because the group’s net assets are worth more than its current market value.

Growth – growth investors look for shares that can sustainably grow faster than the market average. That could include very high growth tech names or high quality steady growth stocks.

Not all companies have benefited from the extraordinary changes we’ve seen in the last decade. Lots of businesses are being disrupted and are unable to keep up with the pace of change. In the twenties and thirties railroads and utilities, the infrastructure from the earlier revolution, declined because of lower demand, a financial crisis, and increased regulation. This time it’s the turn of the financial sector, hurt by a financial crisis and heightened regulation.

Both then and now there’s a connection between the businesses which have fallen from favour.

Value investors have had a thoroughly miserable time.

Has the elastic stretched too far?

Throughout history, the difference between value and growth stocks has rarely been so wide.

An increasing number of investment commentators and industry experts think the disparity has gone too far, and at some point the band is bound to snap back. Those firmly at the receiving end could be in for a nasty shock.

Read transcript

Heather: What are your views on growth versus value investing? Do you have a preference?

Steve: Oh I do. I side on the growth side. You know, traditionally there's a relationship between growth and value and the disparity between growth and value over the last several years has gotten wider and wider and I think it's because in this cycle we have something that we've never had before which is technology companies creating massive disruption. So, I never buy a stock just because it's cheap because in an age of disruption buying value just because it's cheap is a recipe for under-performing. Same thing on the reverse shorting a stock just because it's expensive is a recipe for disaster, unless the fundamentals of that company start to deteriorate. Maybe we've had in the last couple of days – first week and a half in September - a massive move up in value and a decline in growth, but I don't think that's sustainable.

This video is not personal advice or a recommendation to invest. If you’re unsure about the suitability of an investment please seek advice. Investments can fall as well as rise in value and you could get back less than you invest. Past performance is not a guide to the future.

The views in this video are those of Steve Eisman and may not be shared by Hargreaves Lansdown. Views correct as at 12.09.2019.

Technological revolutions are just one way to look at history, but they offer an interesting insight into what markets are going through now.

We’re not saying the current growth trend is going to end tomorrow. Or that there isn’t still money to be made by investing in these businesses. But we do think it’s wise to take a diversified approach to lessen the impact if and when the trend takes a turn. All investments will fall as well as rise in value so investors could get back less than they invest.

A balanced portfolio should invest in lots of different companies across many sectors and countries. If you invest in funds, you should make sure they’re run by managers with different strengths, investment styles and areas of focus.

If you’re looking to add money to your portfolio, it’s worth thinking about fund managers who are experts in value investing. Or it could simply be a good time to review your investments.

You might think about taking profits from those that have already performed well and make up a disproportionately large part of your portfolio. A sensible approach can be to reinvest the gains into areas you have less exposure to, or fund managers that have been through a tough patch, as long as you have conviction in them and believe they have good long-term potential.

If you’re not sure if an investment is right for you, please ask for advice.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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