First, growth versus value is discussed, including comments about the market versus Berkshire Hathaway.
Second, portfolio allocation is reviewed, in light of putting money to work with growth stocks, not just value stocks and dividend stocks.
Third, valuation is always a consideration, but the metrics are not necessarily the same for all types of stocks – examples are provided.
Fourth, a “tried and true” investment approach is explored, to be layered on top of portfolio allocation and valuation.
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matdesign24/iStock via Getty Images Setting The Table
At this point in time Berkshire Hathaway ( BRK.B ) ( BRK.A ) is still my largest position. Of course, I trust Warren Buffett quite a bit and I appreciate the Owner’s Manual . I’m especially fond of these points: Charlie and I hope that you do not think of yourself as merely owning a piece of paper whose price wiggles around daily and that is a candidate for sale when some economic or political event makes you nervous. We hope you instead visualize yourself as a part owner of a business that you expect to stay with indefinitely, much as you might if you owned a farm or apartment house in partnership with members of your family. [Emphasis: Author’s] I started buying BRK.B back in June 2011 and the results have been satisfactory, as I can generally represent here: Data by YCharts But, I’m afraid I would have been better off buying the S&P 500 ( SPY ). Furthermore, I am not convinced that BRK.B will strongly outperform SPY from this point forward. It might, but there aren’t any strong catalysts in place. In fact, there’s likely to be greater volatility and perhaps increased risk as Buffett and Munger taper off, so to speak.
I bring all this up because as time goes on, and I’ve continued to buy value stocks and dividend growth stocks, my strongest positions are those based on growth. Putting this another way, I love value and I love dividends , but growth stocks are the special “kicker” juicing true outperformance in my portfolio.
Therefore, in this article I’ll explain how conservative investors – like me – are finding a rational way to buy growth stocks, and stay sane. After all, buying growth stocks can be very challenging since all the traditional measures are thrown out the window, e.g., P/E, P/B, dividend yield, and so on.
Here’s how the article will play out. First, growth versus value is discussed. Second, portfolio allocation is reviewed, in light of putting money to work with growth stocks, not just value stocks and dividend stocks. Third, valuation is always a consideration, but the metrics are not necessarily the same for all types of stocks – examples are provided. Lastly, a “tried and true” investment approach is explored, to be layered on top of portfolio allocation and valuation. Step One: Pick An Allocation To Growth
I have spoken with many conservative investors over the years and it’s very clear that avoiding risk is a major concern. Make no mistake. I’m in this boat too, with a real disdain for risk, so I continue to invest in more traditional value plays, and dividend stocks.
I’m going to recommend that some percentage of a portfolio should be allocated to growth exactly because of risk. That is, without strong growth, investors can be left behind . Consider how growth ( VUG ) has beaten value ( VTV ) and dividend appreciation ( VIG ), via these three Vanguard ETFs. Data by YCharts Of course I understand this might not continue. This is merely a view in the rearview mirror. But, nothing says we’ll suddenly switch to value and dividends being strong winners. That is, winners tend to keep winning. So, perhaps it makes sense to consider some growth.
Here’s a view into my own real world portfolio, where I’ve injected growth into the mix. Specifically, I bought into Starbucks ( SBUX ) in 2018, Disney ( DIS ) in 2016, Visa ( V ) in 2014. There are other examples but those are a pretty good representation for now. Here’s how they’ve done since 2018 versus the S&P 500 ( SPY ). Data by YCharts At first glance, this might not seem “great” at all, because V and DIS have only done about as well as SPY. But when you inject SBUX into […]