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