Broker Check


| July 22, 2019
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I don't really want to get into the black hole of a technical article here (I won't), but I really want to say something about the differences between the "Value" and "Growth" styles of investing. It can make a huge difference in the performance of your portfolio. So if I go off on some way too complicated technical tangent, just nudge me or fake cough.

When we're talking about Value or Growth investing, we're talking about stocks. Not bonds.

"Value" and "Growth" are styles of investing. They're part of the criteria a money manager will use to select stocks.

Value and Growth investing are like religions to money managers. They tend to believe in one style or the other.

Eventually, while both styles might equal out in the long run, over a shorter term, one will tend to do better than the other, depending upon how the stock markets are behaving.

Growth stocks are companies that may have surprise earnings, or are in an industry that has a lot of momentum. The price of the stock isn't necessarily the number one priority to a money manager. These stocks tend to be more volatile than the general market, and they also grow faster than the general market.

Value stocks are generally considered to be priced lower than they are actually worth. A money manager may consider a particular stock to be intrinsically worth $25.00, while it is currently trading at $19.00. The money manager may purchase this stock at $19.00, thinking eventually, the rest of the world will catch on and as more and more of the stock is purchased, its price will rise due to demand.

There are many other characteristics of Value and Growth stocks, but as mentioned before, I'm really trying not to make this a technical article, and I think I've heard several people fake coughing already.

The "Growth" style of investing generally does better than the "Value" style when the markets are doing well. The markets are humming along, and Growth stocks are more volatile and generally have momentum anyway, so they're off and running. This doesn't mean Value stocks are losing money or even not growing. They could be doing quite well. It's just that Growth stocks tend to do better than Value stocks when the markets are doing well.

The "Value" style of investing does better than the "Growth" style of investing when the markets are not doing well. A lot of that has to do with the fact that the shares are already under priced, so they don't have as much room to go down, but either way, Value stocks tend to be more stable than growth stocks, and therefore also tend to do better than growth stocks during negative markets.

To reiterate.... In a positive market, even though Growth tends to do better than Value, they both could be doing well. And in a bad market, even though Value tends to outperform Growth, they both could be in the negative. This conversation is just in regards to how they do compared against each other.

In the end, Value and Growth, and how they compare to each other, is not a category of information that is commonly discussed, but is vitally important, and can have a huge impact on your portfolio.

Professional money managers use this information all the time. You, if you're managing your own portfolio, may want to be aware, may wish to do more research, and make use of this kind of information.

Think about it... as a money manager myself, I really don't see too much that says our economy, at this current time, should take a turn for the worse. At the same time however, even if you ignore everything else, just the fact that the stock market, in general, has been going strong for about 10 years now, should make you elated and give you the heebie-jeebies all at the same time. Because if history is any kind of determining factor, it's not supposed to be positive for that long without a correction. So every day that goes by without a correction, increases the chance even more for a future correction. Kind of like, if you keep flipping a coin that lands on "Heads", then every time you flip, the chances are stronger that "Tails" will eventually show up.

Give this whole "Value vs Growth" thing some consideration. It can be important when determining your portfolio allocations.

And, as always... if you have any questions, we'll always welcome an email or a phone call.

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