At some point in every market cycle, investors forget the last cycle and get too frisky. We can tell when this happens because it usually coincides with so-so performance for value managers, and great performance for growth managers. Value managers toil in the leaky basement, sifting numbers and history, tripping over stuff that didn’t sell at the last garage sale. Growth managers sail around in the sun, grinning and telling wonderful stories about what is going to happen next to their favorite stock.
While value managers fret about the one thing investors can control – risk – growth managers are creating spreadsheets out forevermore, showing how earnings and revenue will double! triple! And their stocks rise and rise and rise, shaming those of us who are saddled with dopey telecom stocks or plunging energy stocks, and have no interesting stories to tell.
Disappointment sets in. You might be making a little money in your value portfolio, but everyone else is making a LOT! TONS!
Eventually growth gets whacked when the market decides it’s had it with going up and needs to go down for a while. All those stories vanish, and there’s no safety net. No high dividends, no solid cash flow.
That’s where the devastation comes in. When growth gets whacked, it doesn’t do it by half measure. Instead, it does the same thing it did while going up: with vigor, it seeks the bottom of the barrel.
Sometimes, even, a former darling falls into the leaky basement, and hits the value guy on the head. But that’s another story.
Value stocks will fall, make no mistake about it. In a bear market everything will fall. But the degree will be less, and sometimes just holding on to most of your money is the best you can expect.
We vote for disappointment, rather than devastation. Devastation from your investment program is pretty rough when you’re just trying to live your life.
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