Before the global financial crisis, the popular belief was that value stocks (which are less expensive and less risky because of their established worth) were a better investment than growth stocks (which are a relatively more expensive gamble on future worth).
10 or 15 years ago, that theory held true. The market prioritized value stocks because they were less expensive. But the market doesn’t only care about the cheapest stock; it cares about stock with the fastest-growing earnings. Since then, value stocks have underperformed compared to large-cap growth stocks, especially with the explosive growth of mega-cap or “FANMAG” (Facebook, Amazon, Netflix, Microsoft, Apple, Google) stocks.
Because these technology companies started to grow at such unprecedented speed, they began to dominate the index, with many smaller fast-growing technology companies waiting in the wings. And so it was no longer just buying a stock cheaply that mattered; buying a stock that was growing quickly mattered even more.
In my recent article for Forbes, I explore how this trend has been wildly accelerated in 2020, due to a dramatic uptick in technology usage as more people spend more time at home during the pandemic.
Click here to read the full article.