Over time, value stocks have outperformed growth stocks and have done so with a lower standard deviation (see first table below). The coefficient of variation in the third column is the normalized measure of dispersion of a probability distribution. To calculate it, divide the risk by the return. The coefficient of variation provides a useful method for comparing each style by size (a lower number is preferred).
Growth and Value Returns and Risk: 1969-2008
Category Geometric Standard Coefficient
Mean Deviation of Variation
Large-Cap Growth 7.8% 20.5% 2.63
Large-Cap Value 9.2% 18.1% 1.97
Mid-Cap Growth 8.1% 22.1% 2.73
Mid-Cap Value 11.9% 20.4% 1.71
Small-Cap Growth 7.5% 25.0% 3.33
Small-Cap Value 13.6% 22.0% 1.62
Source: Ibbotson’s SBBI Yearbook
Using annual return data from 1969 to 2008, value stocks have outperformed growth stocks by a wide margin (see table below). This margin becomes even more pronounced as the size of the company declines.
Growth and Value Investing from 1969 to 2008
Large Cap Mid Cap Small Cap
Outperformance by Growth Value Growth Value Growth Value
Number of Years 16 24 13 27 12 28
Percentage of Years 40% 60% 33% 67% 30% 70%
While there have been periods where growth stocks outperformed, since 2000 they have only done so twice.