Last week in Sagacious we featured an opinion piece on the challenges involved in sticking with an investment strategy that has recently been underperforming. This week, the Wall Street Journal published an article that examined the extremely long period of underperformance value stocks have experienced relative to growth stocks. The investment strategy of buying “cheap” stocks based on metrics, such as price-to-book that was popularized by Benjamin Graham and Warren Buffett, was also incorporated into Fama and French’s original three-factor model which defined specific factors that provided excess risk-adjusted returns relative to the broad market. Unfortunately, over the past 12 years, value stocks have severely lagged behind in performance compared to more expensive “growth” stocks. This has caused many to question whether the value factor is broken and therefore think that they shouldn’t be counted on as a source of excess risk-adjusted returns in the future. In the article, Mackintosh explores the rationale for why value stocks have lagged growth stocks to such an extent, as well as identifying other instances in history when value has undergone such a stark period of underperformance. While there is no certainty on whether the value factor is indeed dead, the interesting takeaway is that the last period of time when value has underperformed to this extent was when the automobile gained widespread adoption in the 1920's, and the economy was going through a period of disruption by way of mass production and the distribution of consumer goods. If we simplistically extrapolated the historical rationale for value stock’s underperformance, the big question for staunch value investors will be whether or not the current period of technological disruption has run its course and a consolidation phase is underway, or if high-flying “growth” companies have room to continue to innovate and outperform.