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Kiplinger's Personal Finance has a section on the top mutual funds this month. What I found interesting was the comparison of 20 year returns for growth vs. value. These are averages for all funds in the category.


Growth Value
Large Cap 11.7% 12.5%
Small/Mid Cap 11.2% 13.4%

Sure seems to blow apart the theory that the extra risk in growth funds is rewarded by higher returns. The differences were even more dramatic for the 5 and 10 year returns.


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People tell you that both go though good times and bad times. The pendulum swings.

But can you truely find numbers to make a good comparison? During the tech rally, growth funds clearly did much better--to the chagrin of the value investors. After the tech melt down, value stocks had their day.

So rather than conclude that one is always better than the other, the savy investor owns some of both, or figures out which will be in style next year.

What is your pick for the next 12 mo? Value or growth?

Its a bit like roulette. Would you like red or black?
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The Value of "value stocks" is greatly demonstrated in many studies.


buzman
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Sure seems to blow apart the theory that the extra risk in growth funds is rewarded by higher returns

I think you've got it backwards. The riskier the stock, the more its future cash flows will be discounted and the cheaper it will be. Value stocks are the risky ones.

In any case, markets are basically efficient and no one has any idea whether growth or value stocks will do better over the next 1, 10 or 100 years. If you make investment decisions based on such historical patters you are sure to be disappointed.

Nick
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Nick wrote: "Value stocks are the risky ones"

You should read William Bernstein's book.

The value premium is well-documented. If you want to disagree with William Bernstein, Chris Davis, Warren Buffett, Benjamin Graham and me, be my guest.

Futhermore, if you go to the DFA website there is plenty of data showing the efficacy of stocks with low book to market value.

You are correct markets are definitely efficient, but there is a premium for value.


buzman
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I wish I could give you more then one rec buz. I feel the same way, thats why I invest in this fund...

http://www.longleafpartners.com/
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