AbacusCoronavirus crash: for value investors, Covid-19 can be a crisis and an opportunity

History shows the patience of value investors is rewarded in times of economic shock, when investors in growth equities are left licking their wounds

Following the coronavirus crash of 2020, it seems likely we are once again approaching the stage where value outperforms what growth has to offer

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People wearing face masks walk past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange Tuesday, April 14, 2020. Asian shares rose Tuesday although investors were braced for a sobering first look at how the coronavirus pandemic has hurt global corporate earnings and the Chinese economy, the driver of growth for the region. (AP Photo/Vincent Yu)

Published: 7:00am, 20 Apr 2020Updated: 7:03am, 20 Apr 2020

Value investors having to wait their turn for outperformance is not a new phenomenon. Looking back at long-term market trends, there is a pattern of oscillation between periods when investment in “growth stocks” leads, followed by an economic shock and collapse in overblown valuations, at which point “value stocks” come back into vogue.

This is the fifth time this has happened over the past 100 years: the Roaring Twenties, Nifty Fifty, Dotcom, Global Financial Crisis, and now the FANGs (Facebook, Amazon, Netflix and Google) and Unicorn bubble.

As the saying goes, history repeats itself, and for equity investors who were heavily influenced by the overall positive market sentiment, rational thought and valuations once again went out the window. At any time, buying shares without paying close attention to valuations makes little sense to value investors.

After all, when we buy other things, like tangible goods and services, we engage in a “value for money” consideration before buying. We don’t punt on a fridge, guess the value of a car and just pay for it, or book an unfamiliar hotel without taking a close look at reviews and prices online.

People walk past a board showing the Hong Kong share index on April 14, 2020. Photo: AP

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