Why I Stick to Buying Mostly Value Stocks Versus Growth Stocks

in #money7 years ago

Before I should start I wanted to expand a bit on my article about consumer staples from last time and why I like them. I dont think I made it clear enough, but I never buy individual stocks, but rather, I stick to index funds and ETFs. Basically by doing this you diversify your portfolio to an entire sector of an industry, or in some cases the entire market, without having to worry that if one stock goes down you will lose a large chunk of your portfolio. Index funds and Etfs are almost always the way to go. Mutual funds are good as well, but you need to look at the expense ratios (basically the cost you are charged for someone to run the portfolio) and make sure they are not robbing you blind.

When it comes to stocks however, there are generally 3 types of sizes and 3 types of categories each size fits into. In fact ill post a picture of a 3x3 grid below which highlights this idea perfectly. The size categories are small cap, medium cap and large cap, which basically just show how big the market cap is for the individual stocks. As you would think small cap companies are smaller than large cap companies and medium cap are somewhat in the middle. There is also mega cap, meaning massive companies like Apple, but they usually just fall into large cap in most funds and etfs.

Within each one of these sizes there are three options, value, growth and blend. This is basically relates heavily to the price to earnings ratio which means it would take x amount of years worth of profit to justify the share price. So if you have a price to earnings ratio of 10x it would take 10 years of profit at current profit to justify the price of the stock you invest in. Growth stocks usually have higher price to earnings ratios but people expect further growth out of them in the future. Blend stocks are in the middle of the two or mix the two together in a fund.

Between growth value and blend, the types of industries tend to be different which is why I like value stocks. Value stocks with low p/e ratios are usually in industries that are tried and tested, not to mention they pay a higher dividend than growth stocks, which when reinvested end up boosting your returns in a bear market. Growth stocks tend to be more technology focused which can be good and bad. Its good because in a bull market they will usually out perform, but in bear markets they tend to be hurt more, and with the lack of decent sized dividends you arent compensated on waiting during those periods.

I am someone who likes tried and tested industries because they mostly relate to things we need on an every day basis, which is exactly why I like consumer staples as well. While I cant tell the future and growth stocks might outperform value stocks in the future, I like knowing that I am purchasing my stocks for a value that is reasonable and compensates me for waiting in a bear market. In the last 25 years, value stocks have, on average out performed growth stocks in terms of annual growth in every size category. Part of this is because they are more stable when the market drops, even if you arent getting the type of returns when the market is super bullish. However for someone like me who wants less volatile and wants to know my holdings arent ridiculously overvalued, while being paid decent dividends, value is for me.

-Calaber24p

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My personal strategy
70% Value - 20% Growth - 10% Crypto

PS: Love your article @calaber24p! I see a lot of people knowing what they are doing here on Steemit and you look like one of them. Thanks for your post!

I think thats a good strategy, I have a similar one. I do own some growth stuff just for the case of diversification, but I like to keep most in value.

Are you also investing in other assets such as real estates and local privately held companies?

I have read about index’s funds (the sp500 is the most famous one right?) for quite a while and for America it clearly sounds like the best option to invest in regular companies.

I think I read a few weeks or months ago about some sort of way to invest in crypto that emulates an index fund. I wonder if you know a little bit more about this?

Because for now the most popular way to invest in crypto is individual choosing, which is highly risky.

I personally think that crypto index funds are a bad idea, but thats my opinion. The key to an index is getting many holdings and there are very few coins I think are actually worth anything. Also things move so fast there would have to be really fast turnover which is bad. A hedge fund would be better because it implies that you are taking a larger risk in your investment. But that it just me personally.

Great advice! Your article is telling me you know what you are talking about. Do you have any recommendation on dividends paying companies? I understand, you are not an advisor, in case the particular stock turns against the individual you can get grilled for that. I would like to know only what you are interested in and I would research it and make my own decision.
Thank you!

Um I personally like VYM vanguards high dividend yield etf. Its basically large cap companies that pay good dividends and it grows over time. Its something you hold for a long time though, not for 1 or 2 years.

I have heard about this company a lot recently. Thank you, very much appreciated!
I will research it. No blame if I buy and it goes against me.

Great article! I personally like growth stocks since they have higher returns. And since I don’t need the money for a minimum of seven years, I can take the risks. Since I am fairly new to investing on my own, I have not had the addition of value stocks in my portfolio yet. My portfolio is about 60% growth, 25% ETFs (wherever that fits in), and 15% income stocks. Thanks for the info! I’ll find some more information on value investing and will consider diversifying my investments into them!

Good informative post. Value stock is really better. Your idea is good. It will be beneficial for the steemians.

Excelente información, todavía no he tenido la oportunidad de invertir como tu lo haces, todavía no estoy preparado para hacerlo, pero creo que educándome un poco mas y aprendiendo mas de acciones y rendimientos, creo que lo podre hacer mas adelante, mucho éxito.

Every industrial dependent is dependent on the needs of the people. There is considerable change in demand over time. Depending on the plate, the stock can be stocked. However, many times the products of the skin stock may be canceled and may be canceled.

Very smart decision to value invest. Have you ever read about Benjamin Graham or read his book The Intelligent Investor ? Warren Buffet learned from Graham and contributes his success to Graham. Value investing has a bigger long term impact then trying to beat the markets. Very, very few people have the stick to it ability to value invest for years. Nice post !

@Calaber24p value makes more sense over the long term. Valuation metrics like P/E don't do well in predicting or explaining short term returns. For instance, valuation only explains circa 10% of the subsequent year's return. If you extend the time horizon to 10 years however, valuation explains more than 80% of the returns. Just saying that if you want to invest long term then value is good but if you want to speculate short term then growth is more appropriate.

Yes I realize this..I appreciate your post and concept...Thanks for your activity ...Best of luck...