Value & Growth: What Approach Should Investors Take?
Depending on the type, investors rely on different stock strategies. The most popular are Value & Growth. These are substance and growth stocks , so on the one hand, for example, Coca-Cola or Walmart and on the other hand about coveted FANG shares, ie Facebook , Amazon , Netflix and Google.
Value & Growth: often flowing transitions
The latter, in particular, have quickly become stock market giants and make stock names seem almost boring. Star investors Warren Buffet , the most famous representative of the Value Strategy , shows that they are able to generate a considerable return .
No wonder people like to look at value and growth stocks. An almost classic dispute, in which, however, already the rough comparison “Value & Growth “does not always work so easily, for example when growth stocks mature into companies with real substance.
This is shown for example by Microsoft. The stock is among those that can be accommodated in both camps. It is listed both in the MSCI World Value and in the Growth Index. These indices are the basis for ETFs that can be used on both strategies. With their wide dispersion, they reduce the risk, and with the mapping of the special indices, they simplify matters considerably.
Index funds reduce work
And that also eliminates a point that in the comparison of value vs. Growth is seen spontaneously by many as a disadvantage of the strategy with substance titles: Here, stocks must be examined exactly on their substance, in order to recognize whether they have development potential in relation to their stock market valuation. The P/E ratio , the book-to-book ratio (KBV) or the cash flow are only initial indications. Buffet deals with whole bars with such analysis.
Value stocks are all but substance, but ETFs are doing this job. In the growth strategy, however, it is purely the view that counts in the highest growth momentum. It is about companies with a good position in future markets, even if they have not made any profits. However, this carries the risk of bubbles.
In the long term, value stocks have the advantage
And how did it go in the past? In retrospect, the performance of these indices can be compared. A comparison from 1974 to the beginning of the year shows that the MSCI Value with an average yield of 11.91% compared to the growth index with 9.7% clearly has the advantage. Growth stocks have gone better since 2017, keyword technology stocks.
The benefit of growth stocks is also evident after the financial crisis until today. In terms of other time frames, such as between 2000 and 2006 and 2012 to 2015, Value titles are clearly in the lead. As a result of the comparison of value vs. Growth shows that there are no clear winners in the short and medium term, but in the long run value stocks have the advantage. Although they are less stormy, they carry a lower risk.
What is to be done if you do not want to give up the benefits of both, is therefore obvious: mix, with the advantages of value stocks or a corresponding ETF.