Page 28 - Bulletin Vol 25 No 3 - Sept-Dec 2020 - Final

Article | Finance continued

Value vs. Growth: Which is Better?

If we look at recent pricing on a price to book value ratio, the difference is significant. During the
th
period ending June 30 2020, the differences are as follows:
The S&P 500 traded at 3.5 times its book value. The S&P 500 Growth Index traded at 7.4
times its book value.

Data from the University of Chicago’s Booth School of Business has shown, over the long term,
stocks priced cheaply tend to have better performance. However, this has not been the trend
during the past decade. Since 2014 the disparity has been rather pronounced. Looking purely at
return is never the sole answer either. Investments should be looked at on a risk adjusted basis. In
simple terms, how much more risk is needed to increase overall returns? Generally speaking, it is
fair to say value companies tend to introduce less volatility in a portfolio than growth companies.
This has been the case through most market downturns. We saw this play out during the market
correction at the end of 2018. The recent recession and market decline due to the Coronavirus
threw many of the historical norms out the window. The lockdown and the surge in remote
technology use favored the technology sector, which makes up a very big part of large cap growth
space.

It is unknown if we are entering a reversal to value driven companies. We generally favor a slight
bias in most portfolios toward value companies as a method to reduce volatility and enhance long
term returns over short term volatility. This is especially important for retirees, or those close to
retirement, who often depend on some income from their portfolios. We recommend the overall
core holdings of a portfolio is a blend of both value and growth across all market caps. Any attempt
to time value vs growth on an absolute basis can result in missing a significant market move.
Ultimately, the answer to the question of whether growth or value investing is better needs to be
evaluated within the context of an individual’s risk tolerance, time horizon and goals.

A Certified Financial Planner™, Chris Congema began his career in the Financial
Services Industry in 1991. He has been in the Investment industry since 1995
when he joined Merrill Lynch. Chris spent over 10 years at Charles Schwab &
Company. In 2005, Chris joined Fidelity Investments. Chris has tremendous
experience in providing financial planning and counseling to high net worth
investors. He has worked exclusively in the high net worth space (1MM +) since
2000. Chris left Fidelity to start his own firm, Core-X Wealth Management, which
subsequently merged into Landmark Wealth Management in 2015.
Landmark Wealth Management, LLC is an SEC Registered Fee-Only Advisory firm.
For more information please visit www.landmarkwealthmgmt.com

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