| In Proverbs 12:15 the Bible says "the | | | | with Value." I decided to use the facts |
| way of a fool seems right to him, but a | | | | and figures from Galvin and Carter's |
| wise man listens to advice." This verse, | | | | research because it is more recent |
| along with several others, helps me to | | | | (2006). |
| realize that shifting some of my | | | | The Facts |
| clients' assets into growth stocks would | | | | From a cyclical perspective, growth |
| be a wise idea for now. Many of you | | | | shares are priced at nearly a 40% |
| probably noticed changes in your | | | | discount to their longer-term |
| portfolios, particularly in your US | | | | relationship against value stocks. The |
| stock asset class. The changes I made | | | | four year duration of value out |
| were to add growth stocks as well as | | | | performance is matched only by the |
| large-cap stocks to your holdings. So | | | | period from 1973-1976. The money that is |
| now you have a more truly diversified | | | | allocated to growth mutual funds |
| holding of US stocks than you did before | | | | currently stands at the lowest |
| these changes took place. | | | | percentage of total equity assets on |
| So why did I decide to add growth stocks | | | | record. The price to sales and the |
| to your portfolios after avoiding them | | | | price-to-earnings ratios for growth and |
| for many years. There are many reasons | | | | value stocks are starting to become more |
| why I decided to make this change and I | | | | and more even. The premium historically |
| could show you literally pages full of | | | | placed on future revenues created by |
| graphs that support the future | | | | growth stocks would be labeled as a |
| probability of a nice come back by | | | | "value". Another area that continues to |
| growth stocks. In this edition of The | | | | concern me about value stocks, as a |
| Entrusted Steward I'm going to touch on | | | | sector, is that financial stocks which |
| just a few. | | | | make up roughly one third of all value |
| First let us define exactly what growth | | | | stocks are starting to experience poor |
| stocks are compared to value stocks. | | | | performance because of increases in |
| Growth stocks typically have higher | | | | interest rates. These same interest rate |
| price to book ratios, forecasted | | | | increases are causing crude oil price |
| earnings growth rate, and | | | | stabilization or a possible decrease and |
| price-to-earnings ratios than value | | | | this is going to help tech stocks, in my |
| stocks. They also generally pay little | | | | opinion. Technology stocks make up |
| or no dividends where as value stocks | | | | roughly one third of most growth |
| pay higher dividends. This is a very | | | | indexes. Over the past two years |
| basic definition of what a growth stock | | | | technology stocks have performed |
| is compared to the value stock. Why are | | | | opposite to energy stocks. |
| growth stocks valued higher than value | | | | I've picked two of the most convincing |
| stocks? The reason is that value stocks | | | | graphs, to me, for at least moving a |
| are seen to be out of favor compared to | | | | portion of your portfolio into growth |
| growth stocks. Also, growth stocks are | | | | stocks from value. I have always liked |
| anticipated or forecasted to have better | | | | value stocks because during bear markets |
| earnings and revenue than value stocks. | | | | they do not go down as much as growth |
| Much of the information in this | | | | stocks and that is why I'll always have |
| newsletter comes from research of growth | | | | a portion of value stocks in your |
| stocks in a recent white paper written | | | | portfolios (for those with appropriate |
| by Tom Galvin and Rich Carter with US | | | | risk and goals). To summarize many of |
| trust institutional titled, "The Return | | | | the graphs not pictured here in this |
| of Growth Stock Investing." A year ago, | | | | newsletter, growth stocks became |
| I read a similar article by Ben Inker of | | | | tremendously overpriced in 2000 and |
| GMO Investments titled, "The Problem | | | | since then have become a good buy. |