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Tuesday, March 15, 2016

Value Investing Is En Vogue Again, But Should You Strike A Pose?

Barron's magazine did a great job of psyching everyone up this past weekend.  It all started with the title on the front cover: "Will Value Beat Growth?"  The two strategies, growth versus value, should be like the yin and yang, complimentary forces, of equity investing.  Instead, they're more like the feuding schools in an old Kung fu movie where the pupils battle each other to decide whose Master and style is the best.




For the past nine years, "growth stocks have done far better than value stocks," so says the Barron's mag subtitle.  I'm sure they have the data to prove that stocks with higher PE multiples have outperformed those with lower PE multiples.  As a value investor, I have not forsaken Master (Ben) Graham, and indeed, did not alter my investment philosophy to catch this trend.  I've made money in stocks the past four years in a row trading stocks, sticking with value plays.  I could've probably made more chasing growth around, but you cannot be something you are not.  And this is an important point for beginning stock market investors:  You cannot be successful as a stock market investor trying to be Bruce Lee (the pioneer of mixed martial arts).  Become most familiar first with one strategy, e.g., growth or value, then expand into others, e.g., growth at a reasonable value.




With Barron's latest, I suspect most investors will plow back in to the shares of companies whose PE ratios are under 20.  The articles in the issue made mention of many possibilities.  Some of my personal favorites included Ford (F), Ashland (ASH), and Pfizer (PFE).  In the exchange traded fund category, two that perked my interest were Vanguard's, VTV, and Guggenheim's, RPV, with the latter having a lower PE focus, 12 versus 15.



There is cause for concern, however.  The message is clear.  Steering clear of growth is a bearish call on the future prospects of many companies.  Is there no more fast paced earning's growth to squeeze out of the likes of Amazon, Netflix, and Facebook?  Indeed, it is a bearish call on the American and world economies!  

Value does best when there is a healthy mix of growth too.  The consensus is that companies have bolstered earnings the past year buying their own shares, as opposed to growing their shares organically.  You look across the pond and see Draghi now having the ECB pay banks if they loan out their money!  An incentive that may prove as useless as his other gimmicks, negative interest rates, e.g.  China continues to liquidate their holdings in US Treasuries to bolster the yuan.  Chinese investors are transferring their wealth from securities to American real estate.

Where does all this leave us?  I see a lot of scraping the bottom of the barrel happening the rest of this year and possibly even next.  Even if you can find a handful of excellent value plays, and have the conviction to buy, will the market have the impetus to reward investors within a reasonable time frame?  You may just have to sit on a position like a true buy-and-hold, dollar-cost-average, value investor, and this may not be what you expected to do.  That's why I would rather you not follow the herd into value stocks, and instead, look for the needles in the haystack if growth is your thing.

Thanks for reading!  See you next time.         

1 comment:



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