Last year, private buyout groups raised a staggering $106 billion, the most ever and a 90% increase over 2004. This year stands a good chance of beating that record.
And in 2005, investments in value stocks outperformed investments in growth stocks. I think value will beat out growth again in 2006.
The explanation for the better returns from value stocks is pretty simple: So much money has been raised for hedge funds and buyout funds that corporate management at any underperforming company is really under the gun. Improve your company's performance, the activist investors demand, or we'll improve it for you.
Add in a huge spike in merger-and-acquisition activity, and you have a value investor's dream: No more waiting for years until some catalyst finally forces the stock market to recognize the true worth of an undervalued company. Right now, that catalyst -- in the form of a buyout offer or a demand from a hedge fund -- is likely to arrive in a matter of months.