Heartland Advisors

Yes, Value Outperformed Growth. But By How Much?

Warren Buffett famously described the stock market as “a device to transfer money from the impatient to the patient.” What he didn’t mention was how much potential wealth could be transferred through disciplined investing. 

Over my 50-year career in investing, value has outperformed growth. There have been, and likely will be long, frustrating stretches — lasting for years — where value struggles mightily against flashier growth stocks. Thus, to enjoy value’s outperformance requires a tremendous amount of patience to avoid mistiming the market and missing gains. As the famed investor Jesse Livermore noted, investors "…who can both be right and sit tight are uncommon." Yet the potential reward for sitting tight can be well worth the wait. 

We ran the numbers on value versus growth in small-cap securities and were surprised by the extent of the outperformance. Assume a potential $10,000 invested in the Russell 2000 Growth® and Russell 2000 Value® Indices at the start of 1979. By June 2022, the potential investment in the small growth index rose to $460,000 versus small value's $1.46 million. That’s a startling three times as much.

When comparing the performance of the Russell 2000 Value® Index versus the S&P 500 Index, small cap stocks have beaten large caps over the long-term. But as the chart demonstrates, much of the advantage has been derived from small value stocks. 

Heartland Advisors Value Investing S&P 600 Quintile Chart

Source: FactSet Research Systems Inc., Monthly data 12/29/1978 to 6/30/2022. The data in this chart represents the cumulative return of $10,000 for the Russell 2000 Value Index versus Russell 2000 Growth Index versus the S&P 500. The inception date for the Russell 2000 Value® Index and Russell 2000 Growth® Index was 12/31/78. All indices are unmanaged. It is not possible to invest in an index. Past performance does not guarantee future results.

How is this possible when so many tech giants like Amazon or Tesla started out as small-cap growth companies? Remember, small businesses are generally inherently riskier due to their limited access to capital and concentrated customer bases. So, while “the next Amazon” may be more likely to emerge from the small growth universe, the same could be said for the many that disappoint.   

To mitigate the risk of investing in smaller companies, we believe it's important to focus on potential margins of safety. Heartland's disciplined value investment approach focuses on researching smaller companies with solid balance sheets, low price to earnings, and the capacity to self-finance their growth. We know this isn’t the splashiest way to invest. But the potential outperformance — as you can see — speaks for itself.

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Heartland Advisors Value Investing Portfolio Manager Bill Nasgovitz

Bill Nasgovitz

Chairman and Portfolio Manager


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Past performance does not guarantee future results.

Investing involves risk, including the potential loss of principal.

There is no guarantee that a particular investment strategy will be successful.

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indices. Russell® is a trademark of the Frank Russell Investment Group.

Small-cap investment strategies, which emphasize the significant growth potential of small companies, have their own unique risks and potential for rewards and may not be suitable for all investors. Small-cap securities are generally more volatile and less liquid than those of larger companies.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

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Heartland’s investing glossary provides definitions for several terms used on this page.