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Is Value Investing Dead?

Value investing is dead. Value investing remains dead. And we have killed it.

After years in what can be now called one of the worst (if not the worst) period for value investing, many investors have packed their bags and called it quits. Their claim? This time is different.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index.

We’ve heard this be said over and over again; and yet, many of those arguments look extremely compelling. Look, I’m no value bear. If you attended our latest live Round Up, my big bold prediction for 2026 was that US value was going to be a winner. Of course, that happened after I made this video:

In it, I talked to the value investing wizard, author and investor, Tobias Carlisle, about the reason behind value’s epic underperformance. Given the length of relative value underperformance, I think any reasonable investor should at least examine the claim that this time it’s truly different. After, we don’t want to catch any falling knives. My talk with Toby taught me three main things. In this post I will go over those, but if you want to go more in depth, I would encourage you to watch our YouTube piece.

1. Spreads are wide, but they were not always like that

Depending on the metric, value performance peaked some time around 2014-2015. In fact, Toby wrote about it. His take was that this was the worst value opportunity set in 25 years. With hindsight bias, I would bet Toby did not think value returns were going to be as bad as they turned out to be.

You can see this in valuation spreads. Using EBIT-to-TEV as our valuation metric, valuations in 2015 were the most compressed since 1995, right before the explosion of growth and momentum in the late 90’s.

Value’s underperformance, at least in hindsight, was not that surprising.

2. Small lags large around technological revolutions

Okay, maybe this one doesn’t look at value directly; however, generally, value stocks tend to cluster in the smaller segment of the market. According to Toby, while smaller stocks tend to outperform larger stocks, they also tend to underperform around technological revolutions. We’re going through one now. Whether AI is the future, or whether it needs more time to mature, it’s likely that shareholders in the AI industry won’t partake in much of the performance that the underlying businesses will experience.

3. When investing in expensive stocks, shareholder returns do not equal business performance

Just like there is a price too high to pay for the best companies, there is a price too low for the worst companies. In the late 90’s, large quality stocks that had no direct exposure to the internet (Walmart & GE) spent the next decade struggling to earn price returns, even though their businesses did just fine. In the words of Toby “people remember it as a dot-com boom, but really it was a large growth boom.” Yes there were pockets that were dedicated to internet stocks, but the index as a whole ended up suffering. If AI is the future, it’s a possibility that the hot stocks of today are close to being “fully” priced in.

Having gone through these three ideas, I have to say that it’s more than probable that value is not dead, but simply dormant. With hindsight bias, I think value’s underperformance actually makes sense. Whether that underperformance will continue… that’s not a bet I’m willing to make.

Is Value Investing Dead? was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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Is Value Investing Dead?

1. Spreads are wide, but they were not always like that

2. Small lags large around technological revolutions

3. When investing in expensive stocks, shareholder returns do not equal business performance

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