Investing with Style
Investing with Style
How do you define your approach to investing? There may be many answers to that question. One answer goes to the style of investing that you choose: value or growth. Are you looking for value? The goal of a value investor is to seek out “bargains,” finding those companies whose stock may be out of favor for one reason or another and whose stock is inexpensive relative to the company’s earnings or assets. Value investors are looking for companies that have shown low or no sales growth, have little corporate debt and experience below-average earnings increases.
It’s often said that patience is a key attribute of the value investor. By its very nature, value investing means being able to sit back and wait. The belief is that other investors soon will draw the same conclusions about a company’s potential and bid up the stock price. While the value investor waits, he or she still may receive some reward: Value stocks typically have an above-average dividend yield.
Are you seeking growth?
For growth investors, it’s a matter of expectations. Growth investors are on the lookout for companies whose sales and earnings are expected to grow steadily. Because a profitable company rarely goes unnoticed, growth stocks generally are not inexpensive. However, given the appreciation potential that they see, growth investors are willing to pay the premium involved.
The companies whose shares fall within the growth style are those: whose sales growth is greater than that of their competitors; that usually have incurred major debt for expansion, and that usually will deliver little in the way of dividends. They have high earnings per share and high price/earnings and price/book ratios.
Because their appreciation usually is based upon earnings announcements, share prices of growth stocks tend to fluctuate rapidly. But, despite volatility, a good growth stock will report steadily growing earnings. The growth investor’s challenge, of course, is to buy early enough, not sell off the winners too early, and not hang on to the losers too long.
A stock identified as either “growth” or “value” need not retain that characteristic forever. Over time stocks may drift from one category to the other as their fortunes change. As that happens, a portfolio inadvertently may drift from one style to the other. The significant variability of the investment returns between these two styles suggests that “style diversification” may be appropriate or, at least, that style should be one of the metrics by which an investment portfolio is measured periodically.
A combination of styles?
History shows that the market does not tend to favor one style of investing over another for very long. Both growth and value have had their day in the sun.
It isn’t necessary to choose one style over the other. There are ways to build your portfolio in a manner that combines value and growth stocks in a proportion with which you can be comfortable. In other words, you can think of not one style versus the other but, rather, of the styles falling across a spectrum. In that manner, you stand the best chance of taking maximum advantage of the market’s changing preferences.
We can help you find where you want to be along that spectrum. Just give us a call to set up an appointment.
We hope you found this article about “Investing with Style” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
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See Lynn Thomas’ Recent Interview with Alan Olsen: https://youtu.be/0VFOWFl3wqk Lynn Thomas has been helping clients unlock success, one idea at a time by executing tailored client presentations that deliver extraordinary client experiences. Her firm specializes in creating and implementing plans based on new tax laws and the ever-changing market research. Lynn connects with her clients…
See Dr. Lee Hood’s recent interview with Alan Olsen: https://youtu.be/60DDZ0MJ8QE Dr. Lee M. Hood is best known for his development of technologies which have enabled the advancement of predictive, preventative medicine. Dr Hood’s journey began at a young age, when he was an assistant professor of molecular immunology at California Institute of Technology in 1973.…
See Ali’s recent interview with Alan Olsen on Youtube: https://www.youtube.com/watch?v=MJyKKqTCaBM Ali Nasser is a serial entrepreneur who has been helping business owners for nearly twenty years. He understands the legacy dilemma and financial freedom that many business owners face when it comes to their life experience, which is why he has developed a powerful and…
Transcript Alan Olsen Welcome to American Dreams. I’m here today with Lynn Thomas. Lynn, welcome to today’s show. Lynn Thomas Thank you for having me on. I’m delighted to be here. Alan Olsen So Lynn, for the listeners, you have a remarkable career. I think you started out with Arthur Andersen. Lynn Thomas Yes, I…