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