The North American markets gained substantial ground in 2025 and technology companies, particularly those with significant involvement in artificial intelligence (AI), were the biggest beneficiaries of this upward swing. This focus, in turn, meant that many other organizations didn’t enjoy nearly the same returns. Value investors didn’t see the same kind of returns that growth or tech investors did.
Viewed through this lens, it might seem unfortunate that our managers tend to focus on value investing. In fact, our returns were not nearly as impressive as the market as a whole. Short term gains, though, should always be taken with a grain of salt. It is also worth reiterating that we saw returns of 17.4% and 11% in 2023 and 2024, respectively.
Value investing, buying into good companies at reasonable prices, has had many cycles of coming into and out of vogue. The approach also has a long track record of providing solid returns without undue risk. It is the approach promoted by Benjamin Graham and Warren Buffet – both considered to be among the most successful investors of all time.
One measure of value investing is the ratio of the earnings of a company to its price – the P/E ratio. It tends to show expected returns as well as potential risk. The higher the P/E the higher the risk because P/Es tend to revert back to their average over time.
Over the last 50 years, the S&P 500 P/E has had a P/E , on average of approximately 17. Today it sits at 30. That means an investor could lose over 40% of their investment if the market went out of favour – without any change in the underlying companies. That’s a lot of risk.
Yes, it would have been nice to have another double-digit year, but I sleep better at night knowing we don’t have that kind of risk.