3523: Is Value Investing Dead by Vitaliy Katsenelson of Contrarian Edge on Value Investing

Summary

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Optimal Finance Daily – Episode 3523

“Is Value Investing Dead?” by Vitaliy Katsenelson of Contrarian Edge

Host: Diania Merriam
Date: April 12, 2026

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Episode Overview

This episode of Optimal Finance Daily tackles the provocative question, “Is Value Investing Dead?” Drawing from Vitaliy Katsenelson’s analysis at Contrarian Edge, host Diania Merriam narrates and contextualizes a discussion that explores the misconceptions surrounding value investing, contrasts it with growth investing, and places the FAANG stocks at the center of the debate. The episode finishes with Diania’s own take and advice for everyday investors, emphasizing portfolio allocation and long-term perspective.

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Key Discussion Points and Insights

The Growth vs. Value Debate

• Defining Growth vs. Value ([00:52]–[01:40])

  • Market commentators suggest value investing is outdated, asserting that growth has outperformed value in recent years.
  • Traditional measures split stocks into "growth" (expensive, high price-to-earnings) and "value" (cheap, low price-to-earnings), but these are arbitrary categories.

• Interest Rates and Their Effect ([01:41]–[02:24])

  • Growth companies benefit more from low interest rates, as future earnings are discounted at lower rates, increasing today’s valuations.
  • Value stocks, like short-term bonds, gain less from low rates, explaining their recent underperformance.
  • Quote – Vitaliy Katsenelson:

    “Low interest rates, unlike diamonds, are not forever.” [01:21]

Misconceptions About Value Investing

• Statistical Cheapness vs. Investing Philosophy ([02:25]–[03:46])

  • Value investing isn’t simply buying low price/earnings stocks; it requires business-minded analysis and long-term ownership thinking.
  • Value investing is a philosophy, not just math—rooted in the teachings of Ben Graham and Warren Buffett.
  • Quote – Vitaliy Katsenelson:

    “If counting were the only skill required to be a value investor, my 5 year old daughter Mia Sara would be a great global value investor.” [02:45]

  • Six Commandments of Value Investing: Principles rooted in “The Intelligent Investor” (not detailed in the episode, but referenced) ([03:13]).

• The Risks of Chasing Growth ([03:47]–[05:32])

  • Growth expectations often become disconnected from economic reality (e.g., perpetual economic expansion, ignoring rising debt and possible recessions).
  • Quote – Vitaliy Katsenelson:

    “Companies that are already expensive... are priced as if our economy will continue to march uninterrupted by recessions for another decade...” [03:55]

The Dominance of ‘FAANG’ Stocks

• FAANGs and Index Outperformance ([05:33]–[06:45])

  • Facebook, Amazon, Netflix, and Google have driven much of the market’s gains.
  • Their massive size means their success skews index results; missing out on them makes outperformance extremely difficult.
  • These companies are now so big, their future growth potential naturally slows.
  • Netflix faces international challenges; Google and Facebook are tethered to the cyclical ad market.
  • Quote – Vitaliy Katsenelson:

    “At some point, Amazon... will suffer a similar fate. But I’m not calling the top for Amazon stock for two reasons. First, I have no idea how much fuel or growth is left in that rocket. Second, just because something is overvalued doesn’t mean it can’t get more overvalued.” [07:00]

• Historical Context ([06:46]–[07:17])

  • The episode draws parallels with Walmart’s overpriced stock in the late 1990s—13 years to “grow into” its valuation.
  • Fate of FAANGs could mirror this, but timing and magnitude are unpredictable.

Enduring Value and Investor Psychology

• Market Irrationality and Patience ([07:18]–[08:05])

  • Markets can remain irrational longer than investors can stay disciplined, but eventually, expectations meet reality.
  • Some value investors now own FAANG stocks, perhaps out of capitulation rather than conviction.

• Warren Buffett’s Cautionary Wisdom ([08:06]–[08:15])

  • Quote from Warren Buffett (2018 Berkshire Hathaway Meeting):

    “You can turn any investment into a bad deal by paying too much.” [08:07]

• Conclusion ([08:16]–[08:44])

  • Value investing isn’t dead—it’s waiting out the cycle until excessive optimism and overpriced growth fade.

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Host’s Commentary & Practical Advice

Academic and Historical Context ([10:18]–[11:36])

• Diania Merriam relates a conversation with Frank Vasquez (Risk Parity Radio), emphasizing:
  • Historically, value (especially small cap value) outperformed over the long run, but since 2008 growth stocks have led.
  • Debate persists: Temporary setback for value, or paradigm shift for growth?
  • Most investors seek to “beat the market” by picking the right style or sector.

Diversification Over Style-Picking

• Diania’s core message:

  • It’s unnecessary (and possibly futile) to try to pick value or growth “winners.”

  • What matters: Your overall portfolio allocation—balancing stocks, bonds, REITs.

  • All well-diversified 100% equity portfolios perform ~90% the same; likewise for blended portfolios.

  • Quote – Diania Merriam:

    “...we don’t need to beat the market to be successful in investing, and we don’t even really need to debate value versus growth stocks because we can just own both.” [10:46]

Final Thought

• Don’t define success as market-beating returns. Instead, aim to meet your personal goals with a diversified, low-cost investment approach.

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Notable Quotes & Memorable Moments

• “Low interest rates, unlike diamonds, are not forever.”
  – Vitaliy Katsenelson [01:21]

• “If counting were the only skill required to be a value investor, my 5 year old daughter Mia Sara would be a great global value investor.”
  – Vitaliy Katsenelson [02:45]

• “You can turn any investment into a bad deal by paying too much.”
  – Warren Buffett (quoted by Vitaliy Katsenelson) [08:07]

• “...we don’t need to beat the market to be successful in investing, and we don’t even really need to debate value versus growth stocks because we can just own both.”
  – Diania Merriam [10:46]

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Timestamps for Key Segments

• 00:52–01:40: The Growth vs. Value divide explained
• 01:41–02:24: Impact of interest rates on value and growth
• 02:25–03:46: The philosophy of value investing
• 03:47–05:32: Risks of chasing growth and high valuations
• 05:33–06:45: The influence and challenges of FAANG stocks
• 06:46–07:17: Walmart’s historical comparison
• 07:18–08:05: Market irrationality and value investing patience
• 10:18–11:36: Diania’s commentary and portfolio wisdom

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Summary Takeaways

• The supposed “death” of value investing is overhyped; market cycles and interest rate regimes explain much of growth’s recent outperformance.
• True value investing is about thoughtful, business-minded ownership, not just buying “cheap” stocks.
• The dominance of FAANG stocks dramatically affected recent market returns, but historical precedent shows high-fliers eventually revert to the mean.
• Investors shouldn’t obsess over value vs. growth — focus on broad diversification, low costs, and investment discipline.
• Success is individualized; define it by your ability to meet goals, not by beating the market or picking the next winning style.

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Useful for anyone looking for clarity on the value vs. growth debate, and reassurance on pursuing a disciplined, simple investment strategy.

Transcript

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This is Optimal Finance Daily Is Value Investing Dead? By Vitaly Kasanelson of contrarianedge.com? according to many market commentators, value investing doesn't work the way it used to and some tout statistics that growth has outperformed value over the last decade. How do you rebut that view? There are two answers to that question. My first answer is within the bounds of your growth and value constructs, wherein you take a valuation metric, let's say price to earnings, and divide the market into two halves, the top expensive half defined as growth stocks, and the bottom cheap half, the value stocks. That's a very arbitrary and crude way to look at it, but this is what research services do to make this growth versus value comparison. Growth companies by definition have higher valuations as the bulk of their earnings are expected, a very important word to happen in the future. Thus, just as long term bonds benefit from low interest rates, growth companies valuations expand more when interest rates decline since their cash flows, which may lie far in the future, are worth significantly more when discounted bought in today's dollars at lower rates. Over the last decade we saw interest rates decline and so growth stocks did better. Just remember, low interest rates, unlike diamonds, are not forever. Value stocks, just like short term bonds, don't benefit as much from low interest rates and thus they have underperformed. My second answer is a bit more complex. I think value investing is often misunderstood. It's looked upon as the buying of statistically cheap stocks that, let's say, trade at less than 10 times earnings. If counting were the only skill required to be a value investor, my 5 year old daughter Mia Sara would be a great global value investor. She can count to 100 in both English and Russian. Value investing to me is a philosophy that is governed by what I call the six Commandments of Value Investing. All principles that come from the teachings of Ben Graham, spelled out in his book the Intelligent Investor and later popularized by Warren Buffett. I won't delve into the commandments here, but you can get a free chapter from my future book that goes through them in great detail with my own twists. Just go to sixcommandments. Com in short, the value investor approaches the stock market like a smart businessman would if you were buying a business or an office building with the intention of owning it for a long time. If you were approaching stock market investing from this perspective, then you'd probably keep away from most of today's so called growth stocks. Companies that are already expensive and just became even more so priced as if our economy will continue to march uninterrupted by recessions for another decade, unimpeded by the ever growing mountain of government debt that has historically led to higher interest rates. If you think the economy is doing great, let me remind you that we have not had a recession in 10 years. The federal Reserve stopped raising interest rates because it was afraid higher rates that is greater than 2.5% would dump us into a recession. Meanwhile, the US government continues to run trillion dollar annual deficits, so the future may not be as perfect as the expectations read High valuations that are priced into growth stocks might imply. I cannot really talk about growth without mentioning the fangs Facebook, Amazon, Netflix, Google. These companies are responsible for a very large part of the outperformance of growth. They're all terrific well run companies and their products and services are incredibly popular. If you didn't own these stocks over the last five years, you faced a huge headwind in your attempt to outperform the market. Due to their large market capitalizations and their weight in the index, they account for a big chunk of stock market returns. These companies underlying businesses have produced high growth rates for longer than most rational observers would have expected. But the larger they get, the more important the law of large numbers will become as they are limited by the size of their markets. Everyone in the U.S. also their dogs and cats already subscribes to Netflix and international growth for Netflix is less profitable due to the higher fragmentation of languages because not everyone speaks English. Imagine and lower prices for the service. Google and Facebook are in the advertising business and are going to face the natural constraints of the size of advertising markets and the consequences of what happens to advertising spending during a recession. Hint it is very cyclical. And then there's Amazon, a sheer freak of a company today. Everybody knows how great Amazon is, but its stock, just like that of the other FAANGs, has already been discovered and thus trades at over 60 times 2019 earnings, a valuation that may prove to be a bargain if Amazon's business continues to grow at the rate it has in the past. And though I would not want to bet against Bezos, I just don't want to bet on his stock. I vividly remember how in the late 90s, anyone who doubted Walmart when it traded at 52 times earnings was a heretic scoffing at the repeatability of Walmart's three decades of enormous success. The 13 years that followed were not the finest moments for Walmart shareholders. That's how long it took for the stock to grow into its earnings and to come back to its 1999 high. At some point, Amazon, with its $250 billion of revenues, will suffer a similar fate. But I'm not calling the top for Amazon stock for two reasons. First, I have no idea how much fuel or growth is left in that rocket. Second, just because something is overvalued doesn't mean it can't get more overvalued. In May 1999, Walmart stock was at 35 times earnings. A few months later, and almost 50% higher, it was trading at 52 times earnings. Value versus Growth Today, it's more than just the debate of cheap versus Expensive. The debate extends much further. Can something that can't go on forever do so? Most people know the right answer to this rhetorical question. In spite of the fact that the stock market can stay irrational longer than most value investors can stay sane or disciplined, I'm already seeing fangs slowly creeping into value investors portfolios. Maybe they're beginning to understand the value in the future growth of fang stocks. Or maybe they simply can no longer take the pain of not owning them. Value has outperformed growth over decades in the past because it is the human condition to be eternally optimistic, to draw straight lines from past to the future, and to expect good times to roll for longer than they usually do. And thus the expectations that are built into the valuation of growth stocks end up being greater than the reality they eventually face. At the 2018 Berkshire Hathaway annual Meeting, Warren Buffett said, you can turn any investment into a bad deal by paying too much. So value investing is not dead. It's just waiting until all value managers lose their hair and capitulate. You just listened to the post titled Is Value Investing Dead? By Vitaly kasanelson of contrarianedge.com Tax season

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So I ended up talking to my friend Frank Vasquez from the Risk Parity Radio podcast about this article. Because I don't often find myself contemplating value versus Growth stocks. Frank pointed out that the big picture backdrop here is that academics have long observed since the 90s, that value stocks, and particularly small cap value stocks tend to outperform the rest of the market over long periods of time. But this has been turned on its head since the great financial crisis in 2008, and large cap growth stocks like the Fangs have outperformed by large margins. So people have been asking themselves whether this is some kind of temporary anomaly or some kind of paradigm shift. The debate is really rooted in trying to beat the market by investing in particular sectors. However, we don't need to beat the market to be successful in investing, and we don't even really need to debate value versus growth stocks because we can just own both the fact of the matter is, as mere mortals, we can't know which one is going to perform better in the future. What really matters is our portfolio allocation mix of types of investments like stocks or bonds or REITs and not what's in each bucket. The reason is because all reasonably well diversified 100% equity portfolios are going to perform at least 90% the same. Likewise, all reasonably well diversified 80:20 or 60:40 stock to bond portfolios are going to perform at least 90% the same. So as long as we get that piece right, we should just focus on owning low cost diversified funds and not get hung up on growth versus Value or small cap versus large cap. Again, we don't need to be able to predict the future to succeed. And our success is not defined by beating the market, but rather by meeting our individual financial goals. And that's another edition of Optimal Finance Daily. I hope your Sunday is going well so far. Thank you for listening and I'll catch you tomorrow on our next episode where your optimal life awaits.