Port Wren Capital, LLC
Finding Value InvestmentsSM
When you talk to any investor for any length of time you eventually will hear them declare they are either a growth investor, or a value investor. And each will go on to tell you that their strategy works by making them money with their investments. Before we get into each one, letís first define each so we know what we are talking about.
Growth investors, invest in companies that exhibit signs of above average growth, even if the share price appears expensive in terms of metrics such as price to earnings (P/E) or price to book (P/B) ratios.
Value investors, invest in companies that appear under priced by some form of fundamental analysis like price to earnings (P/E) or price to book (P/B) ratios.
Letís look at some of the advantages and disadvantage of both. The growth investors by definition tend to over pay for their stocks and tend to ignore fundamentals. They tend to go more on a gut feeling about the future rather than using and hard data points. In contract, the value investors tend to pay less for stocks and only invest using fundamentals. They tend to go more with using actual data points. Also, they typically determine an estimated intrinsic value range prior to investing in a stock.
So from an historical perspective how do they compare? Letís compare two ETFís: iShares S&P500 Growth ETF (IVW) and iShare S&P500 Value ETF (IVE). The Growth ETF started in 2000 its price is about $177 per share, P/E is 63.31. The fund is composed of the following percentages of each sector as detailed here: Basic materials of 1.17%, Consumer Cyclical of 15.68%, Financial Services of 9.87%, Real estate of 1.92%, Consumer Defensive of 4.38%, Healthcare of 17.06%, Utilities of 0.67%, Communication Services of 1.69%, Energy of 0.28%, Industrials of 10.69%, Technology of 36.61%.
The Value ETF started in 2000, its price is about $115.91 per share, P/E is n/a. The fund is composed of the following percentages of each sector as detailed here: Basic Material is 3.77%, Consumer Cyclical is 7.48%, Financial Services is 24.16%, Real estate is 2.66%, Consumer Defensive 10.52%, Healthcare is 11.64%, Utilities is 5.45%, Communication Services is 5.12%, Energy is 12.61%, Industrials is 9.77% Technology is 6.83%.
With a better understanding of these two ETFís, letís turn to their all time annual returns as show by the chart below.
The total annual returns show that the value ETF outperformed the growth ETF. Specifically the value fund returns 179.5% compared to the growth fund performance of 136.6%.
Granted these are EFTs and also they only give us a picture since from 2000 to about 2018 (18 years) and are just two randomly selected ETFs that do not give a very look indicator for the broader market. Now letís look at a longer time table and also the broader market to see how that compare. The chart below covers their trends from 1979 to 2016 (37 years).
In this chart the growth is the Russell 3000 Growth Index (RAG) not an ETF. It is used to provide a gauge of the performance of growth stocks in the U.S. And the value is the Russell 3000 Value Index (RAV) and not an ETF. It is used to provide a gauge of the performance of value stocks in the U.S. This shows us a broader perspective than just two individual ETFs and it covers 37 years. The growth indicators are below the zero line and the value indicators are above the zero line. You can see for yourself by percent (%) on the left axis being return differential.
What is also noteworthy is there are 14 value events and 14 growth events during this same time period. It is no accident that these are even as the market is cyclical and goes up and goes down. This supports our theory that the overall market is made up of buyers and sellers which come from both sides Ė growth and value thinkers that actually work unknowingly with each other in the stock market. Affirming that both types of investors need each other as they both play a very important role in the trading process.
At Port Wren Capital, LLC, we only buy value stocks and we also look at the long-term horizontal as we conduct our investment research for our subscribers and ourselves. Our subscribers also wish to achieve higher returns realize the advantages of value investing as shown herein provides higher returns than growth. If you want higher returns, contact us to learn more about value investing.
At Port Wren Capital, LLC, we specialize in picking specific undervalued U.S. stocks using fundamental analysis developed by Benjamin Graham using a five step process. We have beaten the S&P500, DJIA and NASDAQ benchmarks since we started 5 years ago on our own investments. Discover the difference for yourself. To learn more contact us today.
GET EXCLUSIVE RESEARCH by Port Wren Capital
Investment Research ExpertsSM
Contact InformationE-Mail: Info@PortWrenCapital.com Phone: 803-415-1935
Copyright © 2013-2019 Port Wren Capital, LLC. All rights reserved. Port Wren Capital LLC logo, PWC Stock Reports, Finding Value Investments, The Contrarian Newsletter, and Investment Research Experts are registered service marks of Port Wren Capital, LLC or its affiliates.