Growth and Value

aroominyork

coastline said:

aroominyork said:

I am reopening this because I still do not quite get the view that inflation is bad for growth stocks. Is it because they are investing now for future returns, so their costs today are increased by inflation but they are earning comparatively low revenues to cover this; whereas value stocks are generally profitable now and are not investing large (inflation sensistive) amounts with an eye on future growth?

Why does inflation tend to be good news for value investing? - The Value Perspective - Schroders

Thanks coastline and tebbins. The part I still do not grasp is, from the above link:

"... the important practical point is that, in an inflationary environment, money now is worth more than money further down the line. The further into the future the money is, the less it is worth. It is for this reason that value, which sees investors recoup their money sooner rather than later, is more attractive in an inflationary world."

If a company has sufficient pricing power to raise its prices in line with inflation, what difference does it make - in an inflationary context - whether it earns those revenues now or at a later date?

Prism

I don't believe that making a distinction between value and growth really helps, except for the fact that the stock market reflects opinion over the short term. So if people believe that banks are better investments during rising inflation, or if they are simply relying on the fact that other people believe that and will push the share price higher, it doesn't matter. Its self propagating.

In one of the links above it says ' During periods of high inflation, shares associated with larger current cash flows are more valuable than growth stocks that promise more distant returns.' So thats Apple, Microsoft, Facebook again... I'm pretty sure thats not what the article is getting at but in todays world not all growth stocks are plays on the future. They are very much of the now with their cash returns, pricing power and branding.

I also feel that people often want to put investing and economic cycles into nice and neat boxes, when it is far from that. For example during the last period of high inflation US stocks did badly but was that just due to the incredible run up they had over the previous 10 years? Also there is a question mark over cash - is it a great thing to hold during a period of inflation or a terrible thing? It depends..

tebbins

Unfortunately articles like this abound these days peddling the same old simplistic, unsubstantiated, unexplained beliefs without any of the same data and critical analysis you used to see. For an example of a genuinely critical article, see: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.actuaries.org.uk/documents/design-application-and-future-development-financial-times-actuaries-index&ved=2ahUKEwjzs5iAiM30AhUNQEEAHemUC2gQFnoECAgQAQ&usg=AOvVaw275bqf_v4q5K3FLmAuSTGH

Thrugelmir

Prism said:

In one of the links above it says ' During periods of high inflation, shares associated with larger current cash flows are more valuable than growth stocks that promise more distant returns.' So thats Apple, Microsoft, Facebook again... 

Cannot avoid paying a decent level of corporate tax much longer though. The playing field is being slowly levelled

aroominyork

tebbins said:

Unfortunately articles like this abound these days peddling the same old simplistic, unsubstantiated, unexplained beliefs without any of the same data and critical analysis you used to see. For an example of a genuinely critical article, see: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.actuaries.org.uk/documents/design-application-and-future-development-financial-times-actuaries-index&ved=2ahUKEwjzs5iAiM30AhUNQEEAHemUC2gQFnoECAgQAQ&usg=AOvVaw275bqf_v4q5K3FLmAuSTGH

For those of us who don't want to read a 50 page paper from the 1960s, would you kindly summarise it?

PS Ah, gotcha. It's a trick to prove your point by having me ask for a summary. Clever lad/ette, tebbins.

tebbins

aroominyork said:

tebbins said:

Unfortunately articles like this abound these days peddling the same old simplistic, unsubstantiated, unexplained beliefs without any of the same data and critical analysis you used to see. For an example of a genuinely critical article, see: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.actuaries.org.uk/documents/design-application-and-future-development-financial-times-actuaries-index&ved=2ahUKEwjzs5iAiM30AhUNQEEAHemUC2gQFnoECAgQAQ&usg=AOvVaw275bqf_v4q5K3FLmAuSTGH

For those of us who don't want to read a 50 page paper from the 1960s, would you kindly summarise it?

PS Ah, gotcha. It's a trick to prove your point by having me ask for a summary. Clever lad/ette, tebbins.

My point isn't the articles point, it's more to illustrate what IMHO a genuinely well-written, critical (as in they're actually switched on, thinking about what they're saying not just repeating the dumb myths and rationalisations you read in popular retail investor media) article looks like.
It's a review of the creation of the FTSE All Share, and even though you can see in many ways how it uses "early days" language it also contains ideas I consider novel that have since been more comprehensively evidenced. For example instead of Keynes' quote about the compounding of retained earnings, para. 32 discusses how dividend raises and cuts indicate future earnings changes, going against the popular "low dividend, high growth" myth. They also repeat some of the exact same things you read in the forum today, and some of the reported statistics then are also true now (para. 43 - 49). I mainly like it as a fairly holistic historic interest peice.