Even advocates of efficient markets and index funds acknowledge that value stocks perform better over time than the indexes and growth stocks. This isn’t a secret. Yet, investors don’t flock to value stock funds. This essay offers a number of reasons why, but the bottom line is that investors aren’t always rational and don’ always act in their long-term best interests.
Value stocks tend to be boring. Many are stodgy dividend-paying companies while others may have hit a rough patch and sold off. Basically, buying growth is sexier than buying value. Growth investing usually centers on exciting industries, revolutionary products and the potential for a home run.
It’s much easier to build a narrative around growth stocks. Since Wall Street runs on earning fees they will generally push products that are easier to sell. Mutual fund consumers can buy into the growth story but value investing is a much harder sell. Most average investors need that story to invest to rationalize their decisions.