How You Can Profit As Market Shifts From Growth To Value Stocks

Over the last decade, growth stocks have performed significantly better than value stocks. Over the past year, however, it appears the pendulum has swung to favor value stocks and recent data suggests the trend is accelerating.reports the 5-year returns decidedly favor growth stocks. During that period, the Dow Jones US Total Stock Market Growth Index has a 12.0% average annual return. By comparison, the Dow Jones US Total Stock Market Value Index yielded an 8.8% annual return.

Popularized by Benjamin Graham, value stock investing has a long tradition. It’s perhaps best represented today by one of Graham’s most celebrated students, Warren Buffet. Value investors are taught to judge value stocks strictly on the basis of their accounting numbers—things like revenue, earnings, dividends, debt, book value and working capital.

Given that each style emphasizes different factors, you would be correct to assume different economic environments tend to favor one style over the other. As the graph below shows, this is precisely what you’ll find in the relative performance between growth and value. During the “Roaring 90s,” growth stocks, as depicted by the Vanguard Growth Index Fund Institutional Shares , dramatically outperformed its value equivalent, represented by the Vanguard Value Index Fund Institutional Shares .When the economy reversed itself in the first ten years of the new millennium, value performed much better than growth.

Investors do have to make a decision regarding where to put their money. Being herd animals, they tend to follow the crowd. When this happens—when the herd picks one style over the other—the neglected style tends to lag in performance. Still, knowing the make up of your underlying investments can help you understand where you may be headed. Just don’t let it trick you into making knee-jerk responses.

Awesome. You can do it, people. You're way ahead of the market. Get off your lazy butts and open a day trading account.

move your money from china related stock to something else period.

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