Recent buys into Value and Growth

New additions to my portfolio

Every year during tax season I contribute new funds to my retirement account (RRSP.) One day I will become a retired man with a pension for telling bad jokes. 😀

I’ve added a few companies to my portfolio this morning. 🙂 In this post I’ll describe what I’m focused on investing now, and next week I will explain why I’m making this shift towards value and growth stocks instead of looking at dividends.

  • Bristol-Myers Squibb Co (BMY) 
    Develops biopharmaceutical products. This is a value stock that has a 20% higher price target according to analysts. Its 10 year revenue and return on capital history has been strong. Thrives in low interest rate environment.
  • Open Text (OTEX)
    This company provides software as a service. It was been growing by acquisition for many years in the cloud and enterprise management space. It receives a lot of annual recurring revenue through subscription models where they help other businesses make sense of customer data.
  • Tesla (TSLA)
    I’ve been looking at this stock for a long time. Never pulled the trigger on it until now. The stock has come down 20% from its highs earlier this year. Mainly bought this because of FOMO. I still think it’s overpriced, which is why I only bought 1 share.

 

Growth and value have historically been cyclical

Growth stocks are expected to outperform the overall market over time because of their future potential. Open Text (OTEX) as mentioned above would be an example of a growth stock.

Value stocks are considered to trade below the overall market’s valuation and thus theoretically provide a higher return as well. An example would be JP Morgan (JPM) or Bristol-Myers (BMY).

But which one is better overall? According to a Vanguard report from last year, there is no clear winner.

Here’s a chart showing a Value index divided by a Growth index. If the line was moving up, it means value was beating growth. If the line moved down, growth was outperforming. (Click to enlarge)

Since the great financial crisis of 2008 growth stocks have been outperforming value stocks. The last time value stocks lagged behind this much there was a sharp reversal circa 2000. So maybe we’ll see a similar turning point any time now. 🙂

But selling all my growth stocks to buy value stocks would be timing the market and I’m not confident enough to make that kind of move.

One of the biggest mistakes investors make is selling a stock too early thinking it has already run its course.

The reality is that growth stocks may continue to outperform this year. On the other hand, value stocks are relatively cheap when looking at the historical data. So my strategy to deal with this uncertainty is to simply maintain a balanced exposure to both growth and value in my portfolio. 🙂

Value stocks will eventually provide higher returns than growth stocks again, as it has done before. It’s just that nobody can know for certain when that trend will start.

 

____________________
Random Useless Fact:

The first bicycle was invented in Germany in 1817, over 200 years ago.

 

Subscribe
Notify of
guest
3 Comments
Inline Feedbacks
View all comments
Clint Lenard
02/28/2021 2:46 pm

I’m interested in how OpenText will do. They’re an interesting company for sure. Tesla and Bristol-Meyers Squibb are probably the easy/safe bets, but OpenText might be the biggest surprise!

trackback

[…] take your eye of the ball, and don’t put all your investments into one country. Adding a tilt to value stocks may also prove to be fruitful over the next 10 years.  A successful investment strategy is mostly […]