ep 394 | Value, growth, or a bit of both?

Today I wanted to talk about growth stocks, value stocks, what the difference is, which is better and how we should think about those when we're putting together portfolios.

Because as you'll all know, if you follow markets, us investment people love to put things into categories, boxes and themes.

and individual stocks are no exception.

So these are two of the most common labels that you'll find that people will apply to businesses or shares, growth and value.

They've been used for decades to describe different types of companies and different types of investment styles.

So a growth stock is a company where the revenues, the sales, the profits are expected to grow more quickly than the wider market.

These types of businesses typically reinvest heavily in their own businesses to fund further expansion because they usually have a lot of growth options and a lot of uses for that capital.

They do that instead of returning those profits to shareholders through dividends.

The tech sector is a really obvious example and Nvidia is a classic example of a growth stock of recent years.

Booming demand for AI infrastructure has driven massive increases in Nvidia's revenue, sales and profits.

But interestingly, that doesn't actually mean that it is extraordinarily expensive.

Because while its share price has soared in recent years, its earnings have risen substantially as well so what that means is that nvidia trades at a forward pe ratio price earnings ratio that isn't actually that high compared to the broader market compared to its own history or the rate at which its profits are growing so that is a very appealing combination and some people would describe that as growth at a reasonable price Now, value stocks tend to sit at the other end of the spectrum.

So these types of businesses, they're more mature, they're trading at modest valuations relative to their earnings.

So you don't pay quite as much for them, but you don't get that same growth profile.

They typically pay higher dividends in part because they've got less need or less opportunity to reinvest those profits into future expansion.

So instead of getting your gains by share prices rising on the back of growing earnings, you will get some of that return by cash dividends that will come back your way.

Now, growth stocks that we've mentioned, NVIDIA as an example, they tend to be in sectors like technology, but value stocks are usually found in sectors like financials, industrials, energy, and materials, those sorts of sectors.

That is very much a generalization, and we shouldn't always assume that growth means expensive tech companies or that value simply means cheap.

Today I wanted to talk about growth stocks, value stocks, what the difference is, which is better and how we should think about those when we're putting together portfolios.

Because as you'll all know, if you follow markets, us investment people love to put things into categories, boxes and themes.

and individual stocks are no exception.

So these are two of the most common labels that you'll find that people will apply to businesses or shares, growth and value.

They've been used for decades to describe different types of companies and different types of investment styles.

So a growth stock is a company where the revenues, the sales, the profits are expected to grow more quickly than the wider market.

These types of businesses typically reinvest heavily in their own businesses to fund further expansion because they usually have a lot of growth options and a lot of uses for that capital.

They do that instead of returning those profits to shareholders through dividends.

The tech sector is a really obvious example and Nvidia is a classic example of a growth stock of recent years.

Booming demand for AI infrastructure has driven massive increases in Nvidia's revenue, sales and profits.

But interestingly, that doesn't actually mean that it is extraordinarily expensive.

Because while its share price has soared in recent years, its earnings have risen substantially as well so what that means is that nvidia trades at a forward pe ratio price earnings ratio that isn't actually that high compared to the broader market compared to its own history or the rate at which its profits are growing so that is a very appealing combination and some people would describe that as growth at a reasonable price Now, value stocks tend to sit at the other end of the spectrum.

So these types of businesses, they're more mature, they're trading at modest valuations relative to their earnings.

So you don't pay quite as much for them, but you don't get that same growth profile.

They typically pay higher dividends in part because they've got less need or less opportunity to reinvest those profits into future expansion.

So instead of getting your gains by share prices rising on the back of growing earnings, you will get some of that return by cash dividends that will come back your way.

Now, growth stocks that we've mentioned, NVIDIA as an example, they tend to be in sectors like technology, but value stocks are usually found in sectors like financials, industrials, energy, and materials, those sorts of sectors.

That is very much a generalization, and we shouldn't always assume that growth means expensive tech companies or that value simply means cheap.