Growth and Value

Thrugelmir

Treat every investment on it's own merits and don't get hung up on whether it offers growth or value. There's always value to be found if you are prepared to take a contrarian stance and have the patience to wait.  I've bought individual shares on the basis of value and held them for periods as short as 3 days (29% rise) and so far forever (though have top sliced one holding when the share price went exponential).  Of course not every investment pays off but that's part and parcel of being an investor. 

Audaxer

Thrugelmir said:

Treat every investment on it's own merits and don't get hung up on whether it offers growth or value. There's always value to be found if you are prepared to take a contrarian stance and have the patience to wait.  I've bought individual shares on the basis of value and held them for periods as short as 3 days (29% rise) and so far forever (though have top sliced one holding when the share price went exponential).  Of course not every investment pays off but that's part and parcel of being an investor. 

The question is, are you beating the market by buying and selling individual shares? It sounds a bit like market timing, that we are constantly told on here, does not work? 

aroominyork

Prism said:

I find it interesting that currently the best represented sector in the MCSI World value index is technology at 21%, followed by financials and consumer discretionary. So does that make technology into a value play

I also find this interesting. The best actively managed value fund, in my view, is Artemis SmartGARP Global Equity (which until recently was paradoxically named Global Growth) and three of its top four holdings are Alphabet, Microsoft and Apple.

masonic

aroominyork said:

Prism said:

I find it interesting that currently the best represented sector in the MCSI World value index is technology at 21%, followed by financials and consumer discretionary. So does that make technology into a value play

I also find this interesting. The best actively managed value fund, in my view, is Artemis SmartGARP Global Equity (which until recently was paradoxically named Global Growth) and three of its top four holdings are Alphabet, Microsoft and Apple.

Presumably GARP in the name SmartGARP is the acronym Growth At a Reasonable Price, which would have somewhat different criteria than a value fund. The top holdings would fit as growth shares that are not overvalued (in someone's opinion), rather than value shares per se.

Prism

aroominyork said:

Prism said:

I find it interesting that currently the best represented sector in the MCSI World value index is technology at 21%, followed by financials and consumer discretionary. So does that make technology into a value play

I also find this interesting. The best actively managed value fund, in my view, is Artemis SmartGARP Global Equity (which until recently was paradoxically named Global Growth) and three of its top four holdings are Alphabet, Microsoft and Apple.

Its mostly the slightly older tech hardware and support companies like Intel, IBM, Micron, HP and Cisco. Growth tech is mostly software although Apple and Samsung are good examples of how to blend both. 

Microsoft and Apple were in the value index until recently so that makes sense.

aroominyork

masonic said:

aroominyork said:

Prism said:

I find it interesting that currently the best represented sector in the MCSI World value index is technology at 21%, followed by financials and consumer discretionary. So does that make technology into a value play

I also find this interesting. The best actively managed value fund, in my view, is Artemis SmartGARP Global Equity (which until recently was paradoxically named Global Growth) and three of its top four holdings are Alphabet, Microsoft and Apple.

Presumably GARP in the name SmartGARP is the acronym Growth At a Reasonable Price, which would have somewhat different criteria than a value fund. The top holdings would fit as growth shares that are not overvalued (in someone's opinion), rather than value shares per se.

SmartGARP is Artemis's in-house tool, so perhaps they are just giving it a name check. The manager, Peter Saacke, is value investing. https://citywire.co.uk/wealth-manager/news/artemis-saacke-why-my-growth-fund-shifted-to-value/a976565

Linton

masonic said:

Linton said:

masonic said:

Interesting, how is that being calculated? Presumably not based on CAPE, as the current all-world CAPE is 26.6 vs the median of ~19, which means that the index is dominated with companies that are trading on an above average earnings multiple and therefore probably shouldn't be defined as value stocks. I would suggest the definition of value and growth has been shifted to accommodate the current dominance of growth in the above analysis.

I have never really looked into CAPEs so may be wrong but but AIUI CAPE is based on 10 year average earnings.  If so it may be a very misleading statistic for the tech giants which have rapidly increased earnings in that period with share prices rising accordingly.

Agree, each measure has its flaws, but in this case (classifying growth companies) it is quite good for the very reason you indicate.

Surely if my theory is right your world CAPE value is too high to reflect current reality.  If the CAPE were only based on a 5 year average its value would be lower and there would be less evidence of domination of the index by growth companies.  CAPE is identifying companies as Growth that are now actually well on their way to maturity.

masonic

aroominyork said:

masonic said:

aroominyork said:

Prism said:

I find it interesting that currently the best represented sector in the MCSI World value index is technology at 21%, followed by financials and consumer discretionary. So does that make technology into a value play

I also find this interesting. The best actively managed value fund, in my view, is Artemis SmartGARP Global Equity (which until recently was paradoxically named Global Growth) and three of its top four holdings are Alphabet, Microsoft and Apple.

Presumably GARP in the name SmartGARP is the acronym Growth At a Reasonable Price, which would have somewhat different criteria than a value fund. The top holdings would fit as growth shares that are not overvalued (in someone's opinion), rather than value shares per se.

SmartGARP is Artemis's in-house tool, so perhaps they are just giving it a name check. The manager, Peter Saacke, is value investing. https://citywire.co.uk/wealth-manager/news/artemis-saacke-why-my-growth-fund-shifted-to-value/a976565

The investment strategy states: "A proprietary tool called ‘SmartGARP’ is used as the foundation of the investment process. It screens the financial characteristics of companies by identifying those that are growing faster than the market but are trading on lower valuations than the market. The manager selects companies that in aggregate have good ‘SmartGARP’ characteristics. This tends to mean that the portfolio contains stocks that have lower valuations than the market average, upgrades to profit forecasts, and are under-owned by the investment community, while at the same time benefiting from helpful trends in the wider economy." (source) This is GARP investing as opposed to value investing.

The manager has been a purely growth investor up until very recently.The article you link does indeed suggest he has tilted his fund(s) further towards value than they were positioned previously, but GARP does sit between pure growth and pure value. I do not think it is correct to say he is now value investing, just subtly shifting in that direction. Even traditional growth investors seek to screen out companies that are overvalued. This article is another example where the headline is rather more punchy than the main text of the article.

masonic

Linton said:

masonic said:

Linton said:

masonic said:

Interesting, how is that being calculated? Presumably not based on CAPE, as the current all-world CAPE is 26.6 vs the median of ~19, which means that the index is dominated with companies that are trading on an above average earnings multiple and therefore probably shouldn't be defined as value stocks. I would suggest the definition of value and growth has been shifted to accommodate the current dominance of growth in the above analysis.

I have never really looked into CAPEs so may be wrong but but AIUI CAPE is based on 10 year average earnings.  If so it may be a very misleading statistic for the tech giants which have rapidly increased earnings in that period with share prices rising accordingly.

Agree, each measure has its flaws, but in this case (classifying growth companies) it is quite good for the very reason you indicate.

Surely if my theory is right your world CAPE value is too high to reflect current reality.  If the CAPE were only based on a 5 year average its value would be lower and there would be less evidence of domination of the index by growth companies.  CAPE is identifying companies as Growth that are now actually well on their way to maturity.

CAPE is based on inflation adjusted earnings. Therefore for the 5 year average to be lower, the earnings would need to be growing ahead of inflation. I'm not sure that matters, however, because it is a ratio of price to historic earnings, so a company with above average CAPE is one with above average share price growth relative to earnings. Earnings are merely used as a gauge of whether the share price growth is sustainable. To me, that's a characteristic of a growth company (although we did start this line of questioning by including both growth and momentum companies, and the latter would include companies well on their way to maturity). I do feel this conversation is descending into one of semantics, so perhaps it is not productive. Whether a company is considered growth, value or momentum, it is selected because there is the belief it will appreciate in value, but the drivers of that appreciation are thought to be different (i.e. future EPS growth vs mean reversion vs market sentiment).

To your theory that CAPE could be misleading for companies whose earnings and share price are both rising, this is certainly the case for a traditional P/E measure, but the longer-term earnings average for CAPE makes this less of a flaw in that such a company (high share price growth and EPS growth) would still be correctly classified 'growth' under CAPE where it wouldn't be on a traditional P/E metric. The purpose of the denominator in each case is to act as a proxy for intrinsic value. If there is a better measure of this across a market cycle, then we should certainly use that instead if we have all the needed data.

I suppose those companies that may be incorrectly classified as "value" using CAPE would be those that suffer a sharp reduction in EPS that isn't the result of the standard market cycle and conversely companies may be incorrectly classified as "growth" if they have a step change upwards in EPS, but these sorts of anomalies would be shaken out over the course of a few years. Probably not so much for those companies that have grown rapidly over the course of several years (this is analogous to "income" shares which coincidentally have an apparently high yield due to rapidly falling share price where a cut in dividend has happened or is expected to follow). I don't think we are at the point where companies can be accurately binned into one category or the other by an algorithm. Hence any computer-based classification should be regarded with scepticism.

I therefore think global CAPE is doing its job and telling us that most of the money invested in global markets has found its way to companies that are not undervalued. There will be some exceptions, but the general picture is probably sound. As a consequence of this, future growth must be driven primarily by real improvements in company performance rather than a change in market sentiment. If one wishes to benefit from the latter, a global index fund is probably not a good instrument to do so.

Thrugelmir

Audaxer said:

Thrugelmir said:

Treat every investment on it's own merits and don't get hung up on whether it offers growth or value. There's always value to be found if you are prepared to take a contrarian stance and have the patience to wait.  I've bought individual shares on the basis of value and held them for periods as short as 3 days (29% rise) and so far forever (though have top sliced one holding when the share price went exponential).  Of course not every investment pays off but that's part and parcel of being an investor. 

The question is, are you beating the market by buying and selling individual shares? It sounds a bit like market timing, that we are constantly told on here, does not work? 

I like to be transparent. All the shares here 

https://forums.moneysavingexpert.com/discussion/5719522/great-british-invest-off-or-passive-v-active-portfolios#latest

are held in (differing) quantities within my (larger) overall portfolio. 

Likewise the performance hasn't been too bad 

https://forums.moneysavingexpert.com/discussion/5719527/great-british-invest-off-or-passive-v-active-updates#latest

over the past 4 years.