Two fundamental styles of investing, growth and value, historically have performed “countercyclically.” This means that when one style falls out of favor, the other type becomes the preferred choice. Thanks to wide fluctuations in the stock market lately, some investors are rediscovering value investing once again. While growth investing focuses on companies that are believed to be in the early stages of considerable earnings growth, value investing concentrates on stocks that are temporarily out of favor with investors on Wall Street and are believed to be undervalued by the market. A more conservative approach than growth investing, value investors tend to approach investing with a long-term perspective.
Where a growth stock may take off rather quickly due to the latest market trend, value stocks follow fundamentals, not fads. By focusing on the big picture, value investors must put market volatility and daily news headlines in perspective. Typical characteristics of value investing: • Buying high-quality stocks that have been discounted relative to the intrinsic value; • Investigating the price of a stock in relation to the annual dividend that the stock is likely to pay; • Buying stocks from a variety of sectors; and • Doing the opposite of what everyone else may be doing. Value investing may or may not be right for every investor.
By examining your personal tolerance for risk and determining a time horizon for your investment strategies, you can determine which style best suits your needs. Regardless of which style you choose, it is important to keep diversification a top priority in portfolio allocation. Michael P. “Perry” Grice is a financial advisor with Stifel, Nicolaus & Co, Inc., member SIPC and New York Stock Exchange, and can be contacted in the Florence office at 1325 Cherokee Road, or by phone at (843) 665-7599 or toll-free at (866) 850-6995.