By Barbara Friedberg
December 19, 2018

ONE PROVEN INVESTMENT strategy for maximizing returns is buying undervalued stock, this is commonly referred to as value investing.

While value players seek the unpolished, overlooked and undervalued stocks, momentum investors jump on a rising stock to ride out the wins. One strategy isn’t necessarily better than another, but each style enjoys its day in the sun…

Naushad Virji, CEO at ShariaPortfolio in Lake Mary, Florida says that the momentum drift was fueled by the corporate tax cuts and lower energy costs.

Low interest rates boosted corporate growth and stock prices, since funds could be borrowed cheaply for companies to expand. Currently, these expansive factors are waning as talks of a looming recession creep into the economic conversation.

Despite the short-term shift toward value investing, experts are divided as to whether this is the right time for this strategy.

“I don’t believe that business fundamentals have changed, as evidenced by the total market cap to gross national product ratio, also used by Warren Buffett,” Virji says.

The current ratio of TMC, which adds up the total market capitalization for all U.S. firms, to GNP, the total market value of goods and services produced domestically and overseas by residents of a country, is about 132 percent. Experts say that this ratio the market remains overvalued.

“We believe that the ratio would need to drop further before one can be confident that they are getting a good bargain on their investment,” he says.

Despite the 2.4 percent decline in the S&P 500 this year, stocks remain expensive compared with historical norms.

Excerpt from U.S. News & World Report article featuring Naushad Virji

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