Even though the Worthington Stock Letter has continued to beat the market averages, this hasn’t been a great year for value investors as Warren Buffett can attest to. For the first time since the dot com bubble, Warren Buffett’s investing prowess has once again come into question. The performance of his Berkshire Hathaway Inc. (BRL.A & BRK.B) shares has returned a negative 10% year to date.
In general, this has been a terrible year for value investing compared to growth/momentum investing. To date the iShares Core U.S. Growth ETF has returned 3.5% while the iShares Core U.S. Value ETF has returned negative 6.1%. Personally, this is one of the worst environments I have seen as a value investor when looking at stocks on my watch list – and that’s saying something.
While it isn’t exactly what our subscriber’s wanted coming into the year, my caution has paid off as we’ve been able to negate the risk of the market, particularly when it comes to value stocks. Although I expect the environment to change, it will probably take until the 2nd quarter of next year to come to full fruition with quite a bit of volatility along the way. That said, I’m not a great short-term prognosticator.
We continue to see a topping process in the market with the S&P 500 unable to break out to new highs. Much of the current market stagnation is due to a dichotomy of fear (energy companies) and greed (momentum stocks) along with a touch of arrogance (FED believing they can control the outcome).
Fear: commodity stocks – energy in particular, continue to get mercilessly pounded due to low oil prices and high debt levels.
Greed: Facebook, Amazon and Google continue to be responsible for an unhealthy portion of stock market gains regardless of valuations.
Greed/Arrogance: Will the FOMC be able to navigate out of a delicate situation? With unemployment levels considered at or near full employment, the core Consumer Price Index growing at a 1.9 percent annual rate and the lack of options to counter any further deterioration in the economy, I fully expect the FOMC to raise rates slightly, with a dovish stance. If they don’t hike, the market could see it has a negative vote of confidence leading to a sharper correction.