Value? Growth? Both!http://www.fool.com/investing/general/2009/10/16/value-growth-both.aspx Julie Clarenbach
October 16, 2009
Red wine or white? Paper or plastic? Value or growth?
Our daily lives are full of choices, and they tend to be presented as though they're either-or. But while you might not want to chat up your boss at the holiday party with a glass of chardonnay in your left hand and a glass of merlot in your right, when it comes to investing, you should imitate your favorite toddler.
Value or growth? Both!
Just say yes
There are two reasons why you shouldn't have to choose.
For starters, it's a false dichotomy
Its growth compatriot, the iShares Russell 1000 Growth Index (IWF), on the other hand, features in its top holdings companies such as … ExxonMobil, Procter & Gamble, and Intel.
This just goes to show that the same company can be both a growth and a value stock. Value investors, after all, want to buy companies selling at a discount to their intrinsic value. Growth investors want to buy companies that will grow their bottom lines -- and presumably your investment -- many times over. But there's nothing excluding fast-growing stocks from being undervalued. That's why Warren Buffett himself said that "growth and value investing are joined at the hip."
Putting the puzzle together
One premise of diversification is that different kinds of stocks do better in different market environments. Putting together assets that don't move in the same direction at the same time will create the best chance for high returns with lower overall volatility. Notice how each of these different investment classes go into and out of fashion at different times:
Sources: Ibbotson Associates, Morgan Stanley EAFE Index, NAREIT Index.
So when you're picking stocks, make sure you choose from a variety of categories:
Your portfolio should have all of these: large caps and small, value st