Analysts on CNBC this afternoon had an interesting discussion about how growth stocks have outperformed value stocks — and not just this year, but for the last couple of decades. As a predominantly value oriented investor, I found the news unsettling.

The money quote (sorry, I cannot remember which analysts were speaking, so no credit where credit is due) was that big value stock companies are the ones suffering from economic disruption fueled by technological innovation as big tech giants try to muscle into other industries.

Fortunately, I’ve added tech stocks to my portfolio in recent years (Microsoft, Intel, Cisco), which seem like value plays to me although other investors might put them in the growth bucket. But putting aside the sometimes blurry distinction between value and growth investments, I think the point made by CNBC’s experts is well taken: a value investing strategy isn’t going to outperform a growth strategy most of the time. One of the analysts suggested that value investing still makes sense heading into a recession, because value firms tend to be more stable in volatile times. The value approach also makes sense just coming out of a recession, when financial stocks (the biggest component of the value stock universe) are poised to rebound nicely.

That said, more often than not the biggest and most reliable dividend payers are usually value stocks. And for income-oriented investors, I think a value investing approach remains the best foundation for building a portfolio. But perhaps blending some growth stocks into a value oriented portfolio can increase total returns.

 

 

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