Does Value Investing Still Work? The Long Drought and After

From its December 2006 peak to its September 2020 trough, the value factor lost 57.8%, before costs. That is the deepest fall in a record that starts in July 1926. In August 2026 the factor stood 32.1% below its December 2006 level.

The value factor, called high minus low (HML), measures how value stocks did against growth stocks. A factor is a paper portfolio built from published data, not a fund: HML is not the record of any fund or investor. This guide shows its record by decade, the long drought, how often it lost over 10 years and what came after. Every return here is before costs and states its dates.

HML stands for high minus low. In the Kenneth R. French Data Library it is the average return of two value portfolios minus the average return of two growth portfolios.

Value stocks have high book-to-market ratios and growth stocks have low ones. Book-to-market is a company's book value, its assets minus its debts, divided by its market value. The companion guide, What Is Value Investing?, shows how the groups are built.

Four things shape every figure here.

Each calendar-year figure compounds that year's twelve monthly HML returns.

Each bar is the mean of the calendar-year HML returns in that decade, before costs. The bar is above zero in 10 of the 11 periods. A mean above zero is not the same as a gain: in the 1990s and over 2020 to 2025 the mean was positive while HML lost ground over the period.

The 1940s were strongest at 9.9%, then the 2000s at 8.3% and the 1970s at 8.2%.

The 2010s are the only period whose mean is below zero, at −2.2%, with 3 positive years out of 10. The 1990s averaged 0.6% and 2020 to 2025 averaged 2.0%. Measured as a compound return over the whole period instead, the 1990s and 2020 to 2025 are negative too.

Across the 99 calendar years from 1927 to 2025, HML was positive in 57 and negative in 42. HML compares the top and bottom thirds, not the ten groups used in the companion guide, so the two give different yearly counts.

The drought here means the stretch from HML's December 2006 peak to its September 2020 trough. Before it, HML compounded at 4.94% a year from July 1926 to December 2006, 966 months, before costs.

The chart compounds each month's HML return from $1 at the end of June 1926. The axis is logarithmic, so each gridline is 10 times the one below.

HML peaked at $48.55 in December 2006 and fell to $20.50 in September 2020, a fall of 57.8% over 165 months. In August 2026 it stood at $32.98.

The next-deepest fall in the record was 43.7%, from August 1933 to March 1935. The longest earlier spell below a peak lasted 71 months, from March 1937 to February 1943. The December 2006 peak had not been regained after 236 months, by August 2026.

Of the 14 calendar years from 2007 to 2020, 10 were negative. HML lost 15.7% in 2007 and 30.7% in 2020. It still gained in four of the 14, including 20.6% in 2016.

The library gives no cause for any of this. The guide measures what happened.

A 10-year window is 120 consecutive months. Each point on the chart is HML's yearly return over the 10 years ending that month, before costs. The 1,083 windows end between June 1936 and August 2026.

Of the 939 windows that ended before September 2014, 12 were negative. They fall in four short runs, the deepest around 2000. Of the 144 windows that ended from September 2014 to August 2026, every one was negative.

The lowest was −6.2% a year, for the window ending May 2020. The window ending August 2026 was −1.0% a year. The highest was +11.7% a year, ending December 1950.

Windows overlap, so they are not 1,083 separate tests.

From October 2020 to August 2026, 71 months, HML gained 60.9%, which is 8.37% a year, before costs. The gain took the level from $20.50 to $32.98. That is still below the December 2006 peak of $48.55.

By calendar year, HML gained 22.2% in 2021 and 31.7% in 2022. It lost 11.1% in 2023 and 7.0% in 2024, then gained 6.6% in 2025. From January to August 2026 it gained 8.3%.

From January 2007 to August 2026, 236 months, HML returned −1.95% a year, a total of −32.1%.

Book-to-market is one measure of value. The library also sorts US stocks on earnings-to-price, a company's earnings for its last fiscal year divided by its market value. Its ten groups start in July 1951.

The returns below are weighted by company market value, count dividends and are before costs. In each sort, the highest group is the value end. These are ten-group extremes, so they swing further than HML, which compares the top and bottom thirds.

Different measures of value gave different answers over the same months. The library also sorts on cash-flow-to-price and dividend yield. This guide tested only earnings-to-price as a second measure.

The window changes the answer. January 2007 to December 2019 gives −36.3%. January 2007 to September 2020 gives −57.8%. January 2007 to August 2026 gives −32.1%.

September 2020 was identified as the trough after the event, from the data. A reader living through 2012 or 2018 could not have known where the low would come.

The record covers US stocks only. The figures are before costs. HML is not a product anyone holds, so no cost estimate applies to it directly.

The record shows HML compounding at 4.94% a year to December 2006, losing 57.8% over the next 165 months and gaining 60.9% over the following 71 months. It does not show whether the next decade will resemble any of them.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

The same approach runs through everything else we publish:

Good places to start on the website:

The record depends on the window. HML, the value factor, returned 4.94% a year from July 1926 to December 2006. It lost 57.8% from December 2006 to September 2020 and gained 60.9% from October 2020 to August 2026. All figures are before costs. HML was still below its December 2006 level in August 2026.

The value drought was the fall in HML from December 2006 to September 2020, 165 months. HML lost 57.8% before costs, the deepest fall in the record from July 1926. Every 10-year window ending from September 2014 to August 2026 was negative.

HML stands for high minus low. In the Kenneth R. French Data Library it is the average return of two value portfolios minus the average return of two growth portfolios, sorted on book-to-market. It is a spread between groups of US stocks, not a fund. It carries no costs.

From October 2020 to August 2026, HML gained 60.9%, which is 8.37% a year, before costs. That took it from $20.50 to $32.98, which is 32.1% below its December 2006 level of $48.55. Whether that is a recovery depends on the window chosen.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.