Does it ever pay to be a contrarian? Or does it simply make more sense to stick with the momentum rather than defy it? I continue to get unbelievable feedback on this value vs. growth, contrary vs. momentum debate, so I know this dichotomy is at the heart of many of your conflicts in investing. So, let's keep exploring.
Just so we don't lose anybody, I'll first explain the two investing camps involved here. One is the value/contrarian camp, which wants to buy cheap stocks that are out of favor, betting that one day they will be in favor. Second is the momentum/growth camp, which would rather buy stocks that have both earnings and technical momentum, regardless of price. In other words, it doesn't matter how expensive they are, as long as they execute.
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I like framing the debate like this because it gives you a prism through which to analyze everything. Most of the managers who come on TV or talk up their game are in the former camp, pushing their value dogma. Most of the managers who make you money are too busy making you money to come on TV to hype their stocks or methods.
Before we go any further, a word about that bugaboo that seems to trip up so many of the value guys: performance. The momentum folk have simply done much better than the value folk over the last 10 years. Ahh, but the value folk say that 10 years isn't a long enough period to measure. To which I say, oh please! Objectively, there has to be some period that matters. I understand that months and even years can be too short a time period. But a decade? Hey, the jig is up. Never let the timeframe canard get the better of you. Value has lost to growth as surely as the
Now the value guys come back and talk about risk/reward. The notion is that their stocks are inherently less risky than the high-growth, expensive stocks. Again, that's just wrong. The value stocks haven't kept their value and the momentum stocks have created so much value in the last couple of years that you could sell them all tomorrow, go into bonds
and the value guys would never catch up to you.
In any other field of endeavor, this debate would be a false one. If this were the military it would be tanks vs. cavalry. If this were football, it would be a ground game vs. a ground and air game. (Why not use the forward pass?) If this were baseball, it would be playing righties against lefties, regardless of whether statistics show you it's better to find lefty batters to face lefties.
So, why do the value guys stick to their guns? Now, this is the toughest question. First, let me give you the thoughtful, kind answer. These managers have been in business for a long time. At one point in their careers these methods generated acceptable returns. They have been at it too long now to change stripes. In fact, they regard it as a virtue that they don't change stripes. They are locked into a thesis that says as soon as they change they'll miss the move back to value. To them, that would be the real sin. Hey, plausible.
Watch for Part 2 of this four-part series later today.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco, Goldman Sachs, Intel, Microsoft and Sun Microsystems. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at