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A24 Beyond growth and value:
BUSINESSMonday 29 February 2016 Investors are tired of choosing
Billionaire investor Buffett: US economy STAN CHOE
better than presidential hopefuls say AP Business Writer
NEW YORK (AP) — Coke or Pepsi? Biggie or Tupac?
JOSH FUNK Buffett defended the lend- Berkshire shareholders will Growth or value?
AP Business Writer ing practices at its mobile be asked this year to vote For decades, investors chose their stock mutual funds
OMAHA, Neb. (AP) — Bil- home unit, Clayton Homes, on a proposal requiring the from one of two distinct camps. On one side were
lionaire investor Warren and Berkshire’s association company to prepare a re- growth funds, which bought only the most dynamic
Buffett said Saturday that with the 3G Capital invest- port on the threat climate stocks with the fastest-rising revenues and profits. On
the nation’s economy is ment firm. chance poses for its insur- the other were value funds, which hunted the bargain
in better shape than the Clayton’s lending practices ance operation. bin for stocks with cheap prices relative to their earn-
presidential candidates have been questioned over Buffett said it’s reason- ings.
make it seem, though busi- the past year in stories by able to worry about cli- Today, just like more people are choosing neither Coke
nesses like his still face chal- The Seattle Times and The mate change’s effect on nor Pepsi, investors are pulling out of both growth and
lenges. Center for Public Integrity the world, but it shouldn’t value stock funds. Instead, they’re pouring cash into
In his annual letter to Berk- that suggested the com- hurt insurance companies broad index funds and other options that don’t pi-
shire Hathaway sharehold- pany was using predatory because policy prices are geonhole themselves into one of the two investing phi-
ers, Buffett didn’t name lending practices. Buffett set annually based on that losophies.
specific candidates or is- said Clayton follows state year’s risks. The moves are the result of several trends that are re-
shaping the investment industry. Chief among them:
Berkshire Hathaway Chairman and CEO Warren Buffett speaks during an interview in Omaha, People are looking for ever-simpler ways to invest, and
Neb. Buffett said the United States’ economy is in better shape than the presidential candidates they’re opting for index funds that track the broad mar-
make it seem in his annual letter to shareholders on Saturday, Feb. 27, 2016. ket. So, instead of holding a small-cap growth fund plus
a large-cap value fund plus a mid-cap growth fund,
(AP Photo/Nati Harnik) more investors are holding just one fund that tracks the
entire stock market.
sues but noted that the and federal regulation and “As a homeowner in a low- The numbers bear out the change in preference. In-
negative drumbeat about retains ownership of every lying area, you may wish to vestors pulled a net $36.2 billion from U.S. growth stock
the economy, health care mortgage it finances. He consider moving,” Buffett mutual funds and exchange-traded funds in the 12
reform and income in- included a copy of a dis- said. “But when you are months through January, according to Morningstar.
equality may get voters closure form Clayton uses thinking only as a share- Another $42.6 billion left U.S. value stock funds.
down about the future. to inform customers about holder of a major insurer, At the same time, $12.5 billion went the opposite di-
“It’s an election year, and lending options. climate change should not rection, into “blend” funds, which own a mix of both
candidates can’t stop Berkshire teamed up with be on your list of worries.” growth and value stocks.
speaking about our coun- 3G Capital to buy Kraft Buffett said change can The trend isn’t as strong with foreign stocks, where in-
try’s problems (which, Foods and Heinz — and creates challenges for vestors are still putting money into growth and value
of course, only they can promptly announced lay- Berkshire. For instance, he stock funds. And even with U.S. stocks, growth and val-
solve),” wrote Buffett, who offs at both firms. Buffett said, its BNSF railroad is cer- ue funds still command big piles of dollars. Together,
has endorsed Democratic said Berkshire has always tain to haul less coal in the they control $2.9 trillion, more than the $2.7 trillion that
Hillary Clinton. “That view craved efficiency and future and Geico insurance sit in blend funds. But the trend is moving toward U.S.
is dead wrong: The babies tends to buy lean compa- could be hurt by driverless blend funds eventually overtaking their growth and
being born in America to- nies, while 3G looks for in- cars. value rivals.
day are the luckiest crop in vestments that need costs He said Berkshire’s busi- One reason for the shift is that investors are tired of pick-
history.” reduced. nesses will adapt just as the ing which philosophy will do best. Or, rather, they got
Buffett struck an optimistic Edward Jones analyst Jim company did when its orig- tired of getting it wrong when they tried to pick which
tone in the wide-ranging Shanahan said Saturday inal Berkshire Hathaway would do best.
letter, which largely fo- the fact that Buffett de- textile operation failed. Growth and value stocks tend to take turns at the top,
cused on what contributed voted space to defending He said Berkshire has an with growth leading for some years before ceding
to his conglomerate’s $24 3G and Clayton suggests advantage in that it can leadership to value. Growth stocks, for example, were
billion profit last year and he’s still hearing criticisms. invest in a variety of indus- in favor during the dot-com boom of the late 1990s. In-
discussed Berkshire’s pros- Buffett has addressed both tries through its subsidiaries, vestors at the time were excited about the “new econ-
pects for the future. The topics at shareholder meet- which agreed to 29 smaller omy” and were more interested in companies attract-
letter also touched on cli- ings in the past. acquisitions worth $634 mil- ing “eyeballs” than in those making profits.
mate change. The letter also noted that lion last year. q After getting burned by the dot-com bust, chastened
investors turned back to value stocks. For seven years,
the value stocks in the broad Russell 3000 index beat
their growth counterparts, from 2000 through 2006. Af-
ter that, growth stocks regained the lead and had bet-
ter returns in five of the following seven years.
Some index funds focus on just growth or value stocks.
But the most popular ones cover broad swaths of the
market and include both.
Vanguard’s Total Stock Market Index fund, for exam-
ple, has $385.9 billion in assets and tracks the entire U.S.
stock market. It’s also more than 10 times as big as Van-
guard’s Value Index fund and eight times as big as its
Growth Index fund. Before dumping growth or value
stock funds and going into these broad-market index
funds, investors need to be OK with getting the mar-
ket’s returns. With index funds, they’ll no longer have
the chance of beating the market. q
