Is the rivalry between growth & value investing warranted? I explain what growth stocks and value stocks are, their historical performances, examples in the stock market, and where value investing comes from.
Growth stocks often offer strong earnings growth while value stocks tend to be undervalued in the market. Growth has been performing better than value since 2007, but value has historically performed best overall.
Even though a lot of people think of Warren Buffett as a value investor, he actually doesn’t fit that label because he has mostly invested in large cap growth stocks. So maybe he’s more of a quality investor based on how Charlie Munger has influenced him to invest over the last 60 years.
I think it doesn’t really matter which category any given stock might belong to because how we go about investing is what counts: “All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.” —Charlie Munger
-Above average gains in earnings
-Expected to continue high profit growth
-More expensive than broader market
-High earnings growth
-More volatile than broader market
-Price to Earnings (PE) ratio can go beyond 30 or even 100!
-Potential for big booms & busts
-Tend to be faster growing, innovative or disruptive companies like Tech
-Performs better in bull markets
-Out of favor but good fundamentals
-Lower priced than broader market
-Priced below similar companies
-Expect intrinsic value to be realized
-Suitable to longer term investors
-PE ratios are often below 15
-Potential for value traps
-Tend to be slower growing, more established companies like Banks
-Performs better in bear markets
I explain performance examples of two Invesco S&P 500 ETFs: RPG (Growth) vs RPV (Value) and look at their top holdings.
The RPG ETF uses a Growth Score of sales growth, ratio of earnings change to price, momentum (12-month % change in price).
The RPV ETF uses a Value Score of ratios to price of book value, earnings, & sales.
In summary: Value stocks might be undervalued, have lower PE ratios, and higher dividends. Meanwhile, growth stocks might be overvalued, have higher PE ratios, and little or no dividends. But the good news is you don’t have to choose only one or the other. You could incorporate both categories in your investing portfolio as long as you’ve done your homework and you believe in the companies.
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
I look forward to making more investor friends! Add me on Instagram: michellemarki! 🙂