I never think about whether stocks we own are growth or value plays. They should only go up, outperform and make us rich or at least feel comfortable.
In the interest of low volatility, I find myself split 50/50 between growth and value sectors. Growthies get killed in a rising interest rate cycle while value stocks with well covered yields can hang in.
We don’t warehouse Meta, Nvidia and its ilk, but hold 10% positions in Microsoft, Alphabet, and Amazon. Live by the sword, die by the sword, but believe in what you own and don’t get readily shaken-out.
In the value sector we own General Motors, Goldman Sachs and Enterprise Products Partners, an energy MLP with a solid yield of 7%. Their oil pipelines do last 100 years or so beyond depreciated value.
Hopefully, GM is no longer its old starched white collar operator of the 1950’s when they wouldn’t hire Jewish boys out of college for their training programs. Same goes for U.S. Steel and the Watsons of IBM. Never invest in a management whose integrity is questionable. I have eliminated from consideration companies whose management overrewards itself with options and stock grants. This includes Tesla and Salesforce.com.
Note, at the bottom of the deep recession in 2001 both growth and value sectors pretty much matched each other, down 11% and 12%. But, in the sharp recovery of 2003, the S&P 500 Index outperformed growth. It moved back and forth, and for this 14-year span the variance was just 1%. Categories meant nothing. Stock picking was everything.
You can lose or make as much money in both value and growth stocks. When the setting is darkest, I look at returns on capital as the indicator of staying power.
Powerful forces like belief or disbelief can prevail for a decade or longer. Look at the valuation shrinkage here for prime properties like Microsoft, Cisco, Oracle, Hewlett-Packard, and Apple. They sold at a discount to the market.
Why so many bargains? Well, earnings surprises popped up. Actually, the market in 1972 traded at 18 times earnings, not much different from today’s level, 20 times earnings.
JP Morgan’s “one decision“ growth stocks peaked in 1972, then got destroyed in the 1973- ‘74 recession. Then, Morgan turned to the value sector for picks. Maybe Buffett has the right answer. Own stocks with great franchises and solid book value like his energy holdings.
My biggest mistake involved losing patience with a stock, its valuation and management. I owned Geico and American Express just like Buffett back in the early sixties. They were great recovery specs. I sold them after a couple of years. Warren still owns these properties, and he has more money than I have, last time I looked.
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