When it comes to investing, does one build a personal portfolio slowly, with quality investments that grow steadily over time? Or does one build it quickly with stocks that will grow rapidly as their new products change the world?
This is the classic growth versus value debate. Warren Buffett is a value investor, buying companies that his analysis says are on sale. Cathie Wood is a growth investor. She is investing in companies and industries that are attempting to change the way we do things.
What style is right for you? The answer may be based on how much risk the investor is willing to take. One thing I have learned from being in this business for 20 years is that very few investors think about risk when the stock markets are increasing. When investors saw the large returns of Netflix, Tesla or Coinbase in 2020, the temptation was to be a growth investor and load up on risk. However now, those companies’ stocks are down 67%, 28%, and 69% respectively year-to-date.
The correct answer is a combination of both styles. Each perform well in different market conditions, and it is difficult to predict when those conditions will exist. Younger, more aggressive investors may lean toward growth while older, more conservative investors will choose value.
Whatever your preference, it is important to continue to invest during market downturns. It is okay to be less aggressive. It is also okay to hold more cash than usual. Cash can be utilized quickly to take advantage of great stocks that are “on sale.” That is how we are managing your portfolios. Be aware of what is happening during market downturns and use that to your advantage when markets rebound.
Thanks for reading.
James J. Denora CPA, CFP®