If you read any investing publications, you often see headlines like “Value Investing is Dead” or “Dividend Stocks—The Safe Way to Invest” or “3 Growth Stocks That Can’t Be Stopped.” A little-known secret is that all of these headlines are illusory. Just because something is or is not working in the investment world does not mean it is the “end all be all.” Titles are designed to grab your attention. They do not have to be and often are not completely accurate – they just want to grab your attention. So what is accurate?
When it comes to investing, everyone is looking for the secret sauce. There is only one, but we will get to that in a minute. Let’s first talk about what the secret sauce is not: It is not the “3 Growth Stocks That Can’t Be Stopped.” It is not any group, style or sector of stocks for that matter. It is not any strategy that someone claims (or can even prove) has beat the market every time for the last decade or two. It is not a fancy strategy you can barely understand or not understand at all.
You see, markets are cyclical and there is not a group of investments, style, sector and strategy that is immune to this. Let me explain in the most elementary of terms I can think of. Imagine an airline company. They use fuel to fly their airplanes. So, now imagine a fuel company. They are at the mercy of what the price of oil is. Let us pretend the price of oil shoots up twenty-five dollars a barrel. This may be helpful to the oil company, but is this helpful or harmful to the airline company? Harmful. They will need to pass this on to the consumer, but possibly with delay, which means they will eat some of this cost. Furthermore, there are less consumers if the cost is higher.
We forget sometimes what a market is. We think of it as some fancy, imaginative world where money grows on trees and falls off just as fast. But the reality is that the markets are made up of companies, which we as consumers use every day. It is simple supply and demand rules at bay.
Which is why so many investors get hurt. They forget the rules. They want something fancy—the latest and greatest. They want what “is” working in the market and no longer want what “isn’t.” working. And by this way of “herd mentality,” they end up buying high and selling low. That is just the opposite of what we all know we should do.
There is nothing that “can’t be stopped.” There is nothing that is “safe,” but more often than not, it probably isn’t “dead” either. Every style goes in and out of favor.
Consider the charts below. These lines represent value stocks, growth stocks and dividend stocks since 1998 with a beginning amount of $10,000*.
Guess what everyone is running towards today? Yep…growth stocks. But if we heed the advice of the alleged “greatest investor of all time,” Warren Buffet, what should we be buying? Value? Dividends? To quote Aaron Kennedy, CFA®, “Everything has its day in the sun, but most people don’t find it till night.”
There is only one secret sauce to investing: Discipline. Don’t get me wrong. You need to get your risk right, you need to have an investment strategy in place, you need to have an investment plan in place to support your income needs, future and goals, family dynamics, etc. You need to have proactive, not reactive investment management. But still NONE of these things will work without the secret sauce.
Sometimes it is not about the answer. It is about asking the right question. Which stocks will come out on top will ultimately depend on where the cycle is when you die. Perhaps you should ask yourself, How do I come out on top?
Advisory services offered through Smart Money Group LLC, a Registered Investment Adviser. Securities offered through Calton & Associates, Inc. Member FINRA/SIPC. Kennedy Financial Services, Inc., Calton & Associates, Inc. and Smart Money Group, LLC. are separate entities.
- Average of Russell 1000 Growth Index and Lipper US Index of Large Growth funds
- Average of Russell 1000 Value Index and Lipper US Index of Large Value funds
- Average of Russell 2000 Growth Index and Lipper US Index of Small Growth funds
- Average of Russell 2000 Value Index and Lipper US Index of Small Value funds