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Growth Vs Value Stock

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Stock investment strategies come in many forms. For most investors both the form of stock investment and the investment strategy should be kept simple to be effective. Here’s how to keep your stock portfolio on track for long term profits while avoiding investment strategies that often don’t work.

Often long term stock investment strategies concentrate on being in the best stock (equity) sectors or categories over time. Two broad classifications are commonly used to describe general equity characteristics: growth vs. value and small-cap vs. large cap. Over a period of time, either the growth sector outperforms value or vice versa. The same holds true for small company stocks (equities) vs. large company equities. If you choose correctly, over time you will outperform the market.

The problem is that this task is easier said than done. The bubble that burst in 2000 ended the greatest bull market in history. Many small-cap growth stocks grew to be large-caps in the 1990’s and many of them traded on the NASDAQ. These same equities have yet to reach their past highs; nor has the NASDAQ. Some of the growth companies that were on fire for years now resemble value stocks. They pay dividends, sell at normal or modest P-E ratios, and trade without significant volatility.

How can you simplify the management of your stock investment portfolio to outperform the market without relying on complicated stock investment strategies? First, use equity mutual funds as your form of stock investment. They are classified or labeled for you by fund companies and independent sources. For example, XYZ Opportunity Fund might be labeled as a small-cap growth fund; while ABC Equity Income Fund carries a large-cap value label.

You have no idea whether growth or value, small-cap or large cap will outperform in the future. You basically have four choices: small-cap growth, small-cap value, large-cap growth, or large-cap value. You decide to invest an equal amount in four different funds of the same fund company, one from each of the above categories. That’s the first step in your investment strategy.

Now comes the important part. Each year your four funds will perform differently, and some years the difference will be significant. Instead of just holding and having all of your bases covered, you put the rest of your investment strategy into action. Once a year you rebalance so that you return to having the same amount invested in each fund. This means that you will be moving money from your best performers to your worst performers. It also means that you are taking money off the table from the categories that are getting pricey and moving it into the areas that are getting cheaper.

This is in contrast to many stock investment strategies that have you chasing stock sectors when they get hot. The problem here is that by the time you confirm that a trend is in place and buy into it, that trend is likely about to reverse and leave you high and dry having bought at the top. Unless you want to make a part-time job of trying to out-guess the market I suggest you not try to predict the unpredictable. Find a long term stock investment strategy you are comfortable with and stick with it.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

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Value vs. growth investing: which way of evaluating a stock’s potential is better? You decide.(B.E. BASICS): An article from: Black Enterprise $9.95 This digital document is an article from Black Enterprise, published by Earl G. Graves Publishing Co., Inc. on March 1, 2010. The length of the article is 734 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available immediately after purchase. You can view it with any web browser.Citation DetailsTitle: Value vs. growth investi…