Before I should start I wanted to expand a bit on my article about consumer staples from last time and why I like them. I dont think I made it clear enough, but I never buy individual stocks, but rather, I stick to index funds and ETFs. Basically by doing this you diversify your portfolio to an entire sector of an industry, or in some cases the entire market, without having to worry that if one stock goes down you will lose a large chunk of your portfolio. Index funds and Etfs are almost always the way to go. Mutual funds are good as well, but you need to look at the expense ratios (basically the cost you are charged for someone to run the portfolio) and make sure they are not robbing you blind.
When it comes to stocks however, there are generally 3 types of sizes and 3 types of categories each size fits into. In fact ill post a picture of a 3x3 grid below which highlights this idea perfectly. The size categories are small cap, medium cap and large cap, which basically just show how big the market cap is for the individual stocks. As you would think small cap companies are smaller than large cap companies and medium cap are somewhat in the middle. There is also mega cap, meaning massive companies like Apple, but they usually just fall into large cap in most funds and etfs.
Within each one of these sizes there are three options, value, growth and blend. This is basically relates heavily to the price to earnings ratio which means it would take x amount of years worth of profit to justify the share price. So if you have a price to earnings ratio of 10x it would take 10 years of profit at current profit to justify the price of the stock you invest in. Growth stocks usually have higher price to earnings ratios but people expect further growth out of them in the future. Blend stocks are in the middle of the two or mix the two together in a fund.
Between growth value and blend, the types of industries tend to be different which is why I like value stocks. Value stocks with low p/e ratios are usually in industries that are tried and tested, not to mention they pay a higher dividend than growth stocks, which when reinvested end up boosting your returns in a bear market. Growth stocks tend to be more technology focused which can be good and bad. Its good because in a bull market they will usually out perform, but in bear markets they tend to be hurt more, and with the lack of decent sized dividends you arent compensated on waiting during those periods.
I am someone who likes tried and tested industries because they mostly relate to things we need on an every day basis, which is exactly why I like consumer staples as well. While I cant tell the future and growth stocks might outperform value stocks in the future, I like knowing that I am purchasing my stocks for a value that is reasonable and compensates me for waiting in a bear market. In the last 25 years, value stocks have, on average out performed growth stocks in terms of annual growth in every size category. Part of this is because they are more stable when the market drops, even if you arent getting the type of returns when the market is super bullish. However for someone like me who wants less volatile and wants to know my holdings arent ridiculously overvalued, while being paid decent dividends, value is for me.
-Calaber24p