Team Apple or Team Facebook? 📱💻 (Value vs Growth Investing)
This week, our team discussed several important business matters: should we start a TikTok? How can we ensure everyone gets early access to Q.ai Invest ASAP? Is Tom Brady or Bill Belichick the best tactician?
We promise the third one isn’t a red herring – and you’ll see soon enough. We’ll give you a hint: hate him or love him, “Tampa Tom” is by definition the GOAT and he’s totally winning the breakup. Regardless of the team you’re rooting for this weekend, stay safe and take this Super Bowl trivia to test your football smarts.
Also, we’ve been mentioned in the news! Check out this CNBC article and episode from their show ETF Edge. Stephen (our CEO and Founder) comments on the GameStop craziness and explains why Q.ai Invest could be the solution investors are looking for.
This week’s biggest headlines
- ExxonMobil has decided to check out lower-carbon energy solutions. Notoriously a proponent of fossil fuels, it looks like the company has decided to give renewable energy a shot after experiencing one of its worst years to date. The company estimated losses of $20.1 billion in Q4 of 2020, was removed from the Dow, and, most recently, was placed on the “credit watch” list by the S&P Global Ratings agency (along with Chevron and Shell) – an indication that it could be downgraded if things don’t turn around. Read more.
- Pinterest reported a massive fourth quarter revenue of $706 million. Year over year, its Q4 revenue has grown by 76% and is likely due to product improvements in advertising – and an exceptionally high demand for e-commerce advertising throughout the holiday season. Read more.
- Alibaba set out to raise $5 billion via U.S. dollar bonds and received $38 billion in orders from investors. The investing world has not forgotten about CEO Jack Ma’s recent fallout with Chinese regulators – and mysterious disappearance – but it’s clear that they’d still bet on him. The money is said to be used for sustainability-related causes. Read more.
- Amazon workers will vote next week on whether to unionize. This has been flying under the radar this week due to Bezos announcing he will be stepping down as CEO of Amazon, but a vote for organized labor could have compounding effects to the second largest employer in the U.S. A mail-in vote is to be held in Alabama next week, so stay tuned for the results. Read more.
- What’s up with the Apple and Facebook beef? Apple’s latest iOS 14 release was supposed to include a new feature: the ability to restrict apps from collecting your personal data without the user’s approval. However, the company decided to put off its release to allow time for the advertising industry to plan accordingly. Facebook argues that this move will mostly impact small businesses who rely on paid advertising. But it wasn’t until Zuckerberg called out Apple directly in a recent earnings call that Cook clapped back with “technology does not need vast troves of personal data, stitched together across dozens of websites and apps, in order to succeed. Advertising existed and thrived for decades without it.” Oof. Read more.
The difference between growth and value investing
Two of the most common investment styles are value and growth investing. They both have a separate set of philosophies accompanied by upsides and downsides.
- Growth investors are after long-term gains in the market. They do this by investing in companies they believe are valuable and have potential to see gains on stock prices in the future.
- Value investors focus on securities they believe to be underpriced in the market. Value investing strategies seek to make gains on securities when the market realizes their full value and the price increases.
No two investors are the same. Often times, though, investors will select a specific type of security and form a strategy around it.
While some investors strictly follow broad-based indexes like the S&P 500 and Nasdaq Composite, others search for undervalued stocks or stocks that show significant growth potential, also known as value and growth investing.
The growth investing strategy works by building a portfolio of securities with high growth potential. Often, growth investors employ this method for assets they believe have strong underlying value, rather than just examining the fundamentals or other financial metrics to reach a conclusion.
- Growth investors frequently do a lot of research on their selections, taking into account factors such as the current and future health of the company, the industry and competition
- Many growth investors are after long-term gains in the market. These individuals believe that a company has vast potential for growth over a period of years, rather than months, and will hold on through various market crashes and rebounds
- May also be short-term investors. Typically, these investors are interested in industries that exhibit rapid upward momentum before reaching a plateau or falling off a cliff. Such securities are common in emerging industries like technology and healthcare.
Pros and cons of growth investment strategies
- Growth investment strategies come with high potential for returns, as the name implies
- Depending on the exact stock, companies that fit the profile can see annual returns that exceed the market by several percent
- Growth investors either have to pay a portfolio manager to invest time into the strategy for them or take the time to do the research themselves
- Companies that are growing aggressively are more likely to be volatile than companies seeking long-term returns, which means that an investor has to either be risk tolerant or have the time to sell securities in the event of a market crash
- Because many growth assets reinvest their profits back into the company, they don’t pay dividends. This makes growth investing a risky strategy with no guarantee of returns for many investors – even the most experienced ones.
Value investors focus on securities that they believe are underpriced compared to their true worth. The allure for value investors is that when the market corrects to accurately reflect a company’s price, they can cash in on their returns quickly.
- Value investors subscribe to the belief that the market is irrational, which leaves opportunities to see gains on securities that slip through the proverbial cracks
- Value strategies focus on buying these assets at a “discount” now and selling them for a profit potentially years down the line
- Most value investors play the long game, as the market may not correct its oversight for years to come
In order to be a successful value investor, it’s important to do plenty of research not only on the stocks you wish to purchase, but the larger markets as a whole. This means that many who prefer this strategy turn to professional portfolio managers to make the call for them, as the time and resources required can eat into an individual’s day substantially.
Pros and cons of value investment strategies
- Studies have shown that, over time, value strategies tend to produce larger returns than growth strategies
- However, these gains are not typically realized for ten years or more, which makes value investing an even longer-haul game than some growth strategies
- One of the biggest downsides of value investing is that what constitutes a “value” stock is subjective. While it’s possible to make money on the right call, the wrong call can lead to nothing but losses and headaches
- Many individuals don’t have the time to vet every security in depth, which means value investors either accept the risks of a half-researched investment or turn to a portfolio or fund manager in order to turn a profit
The bottom line
Both are popular investment strategies for a reason. Depending on your current situation, one might make more sense for you than the other. And that could change over time, too.
Ask yourself how much money would you be OK with losing if your investments go awry. More importantly, how much time do you have to research stocks and manage your portfolio? Your answers to those two questions alone could significantly guide your decision.
This short and sweet video is great for anyone looking for a refresher on how you can make money investing in the stock market. It also briefly touches on value and growth investing.