Want to hear one of the dumbest arguments of all time?
Hang around some Wall Street strategy nerds and They’ll debate for hours over whether
“Value” investing or “Growth” investing is better.
But you know what?
I’ll prove to you why the debate is nonsense, and why it WON’T make you money.
If you’ve sat around the last week thinking about a stock market rotation, and whether or not you should be making changes to your portfolio.
Then stop what you’re doing because I have a very important message for you.
So, here’s how the “value” defenders and “growth” enthusiasts engage in their debate.
They start by looking at two indexes: The Russell 200 Growth and the Russell 2000 Value indexes.
But let’s look at what these indexes actually comprise for a minute.
The Russell 200 Value Index contains stocks that trade at a low multiple of book value and have poor growth prospects.
It is rebalanced annually.
In other words, these investors are buying an unmanaged index of cheap companies with no quality control or credit checks.
The resulting pile of slop is supposed to represent the thinking of great value investors like Warren Buffett, Seth Klarman, and Bill Miller.
But it’s actually the furthest thing from replicating these legendary investors’ strategies.
Meanwhile, the Growth Index comprises those Russell 2000 stocks that have higher price-to-value ratios and higher forecasted growth values.
Like the value index, it is rebalanced annually.
Again, it’s also totally unmanaged without any discussion of earnings quality or creditworthiness.
This collective garbage is supposed to represent the clear-minded growth-focused thinking of growth legends like Richard Driehaus, Peter Lynch, and William O’Neill.
These indexes don’t represent the philosophies of growth or value investing.
The bottom line is that using these two indexes – which most advocates do – is both reckless and stupid.
Both Value and Growth Work
These are both great strategies, but they are more complex than then indices would lead you to believe.
I don’t have to just choose one. I just have to understand how they work in different time frames.
The debate is dumb: It’s like arguing the merits of bourbon versus red wine.
They are both good. In the right place and time, either can fit the bill.
Hell, sometimes I can have a bourbon before dinner and red wine with dinner.
Many of Wall Street Wonks have already picked a team. You are either on Team Value or Team Growth.
That’s also dumb.
I can use all the ways of picking stocks to your advantage and eventual profit.
Look at the market today.
Should I buy Phillip Morris (PM) and AT&T (T) because they have enormous dividends, low multiples of earnings and cash flows, and will definitely be around in 20 years?
Hell, yes, I should.
These are great companies with a long history of paying and raising their dividends. I can own these companies forever and watch compounded returns turn modest positions into generational wealth.
On the momentum and growth side, there’s opportunity as well.
Look at Zoom Communications (ZM). The stock is red hot and leads the way into a whole new world of business and personal communication?
Hell, yes, I should.
Money is pouring into Zoom.
Institutions, traders, Robinhood newbie’s, pretty much everyone is buying Zoom, and all that buying pressure is driving the stock higher every day. The stock has more than tripled in the past year.
I probably will not own a stock like Zoom forever. Sooner or later these highflyers hit a bump, andI will want to jump out when that happens.
I will never hit the top or the bottom, but if I can just carve out a chunk of the meat in the middle of a massive move, I will make a lot of money.
The first two stocks are value investment ideas with low valuations and high dividends.
Zoom, and stocks like it, are growth and momentum stocks. They have accelerating sales and earnings and buying pressure to push the stock higher on a daily basis.
Both can make us a lot of money. Why would I choose one at the exclusion of the other?
Making Money for Me
Some of our generation’s bigger brains have tackled this problem and found that while the wonks may be educated, they are not all that smart when it comes to investing for the long haul.
Value works. Growth and momentum work.
They just work in different time frames.
I can use them both to make enormous amounts of money in the stock market.
I do not need to wed ourselves exclusively to one concept.
If I find a small company that is clearly going to benefit from some of the massive trends shaping our society, why shouldn’t I buy shares?
If I find a tech company growing its dividend payout at eye-popping rates, why would I not buy some shares?
If I see insider buying near recent price highs, I know that the trade is probably based on material information. It would be dumb not to buy some shares.
Let the wonks pontificate about asset allocation and strategy shifting.
We can focus on the only question that really matters.
Is this stock going to make me a lot of money?
I’ll explain more on how to use both strategies at the same time in the coming days.