As one of the world’s highest-profile and most successful investors, Berkshire Hathaway chairman and chief executive Warren Buffett – widely known as the Oracle of Omaha – isn’t afraid to call a spade a spade.
However, market valuations have also become increasingly stretched, with growth stocks on average trading more than 3.3 times higher than value stocks. This compares with an average relative value of 2.7 over the past decade, and 2.4 in the past 50 years.The last time growth stocks were so expensive compared to value stocks was during the market peak of 2020, and before that the 2000 dot-com bubble.
To be sure, the state of the business cycle alone is an unreliable signal of the relative returns between value and growth. However, when value has traded this far below its fair value – as it is doing today – it has historically enjoyed a performance edge in all but contractionary economic phases.