The ancient battle between Value and Growth investing continues, with Barron's weighing in with its take on the issue. It's starting to remind me of the Hundred Year's War between France and England or that Star Trek episode where two planets have been at war for five hundred years.
Value Investing has underperformed growth investing over a six month or three year horizon, but Value Investing outperformed in the second quarter of 2009.
The problem with this and all other like statistics is that it artificially categorizes all cheap stock as Value stocks. Barron's uses the Russell indexes to measure performance, and specifically mentions Bear Stearns, Citigroup (C), Freddie Mac (FRE), General Motors, Macy's(M) and JCPenney(JCP) as being particularly harmful to Value investors.
Just because a stock is cheap doesn't make it a Value stock. This is pretty basic and is one of the first things any investor learns after picking up a book written on Value investing.
Sunday, August 2, 2009
Value vs. Growth
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Largely, it's a matter of taste; Warren Buffett and Charlie Munger's combined style reflects both. If there's any commonality between the two, it would be the rule about buying when unpopular and selling when popular.
The main risk in value investing is, of course, buying pseudo-dollars for fifty cents. On the other hand, the main risk in growth investing is companies falling off the growth track. A fallen star can implode in a real hurry.
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