The Spokesman-Review

Growth, Value Can Balance

In the long-running debate between the growth and value schools of stock-market investing, some fund managers and shareholders don’t take sides.

They spread their money around among investments of both types, figuring there is no sure way to predict which will be in vogue at any given time.

“That way you’re never out of the game,” says Terry Milberger, a 15-year veteran at the helm of the $700 million Security Equity Fund in Topeka, Kan.

“You can do well by sticking with either school, but most often I hold a mix of both groups,” says Stan Luxenberg, editor of the newsletter The Critical Investor, aimed at people who invest through the fund supermarket at Charles Schwab & Co.

“Spreading my bets, I soften big market drops. A balanced approach is particularly important now with the market at high levels.”

In simplest terms, growth and value investors come at the market from different angles.

The growth camp favors companies with the brightest earnings growth outlook, even if those prospects already are well recognized on Wall Street. Under this line of reasoning, it’s worth paying a relatively high price, if necessary, to go first class.

Value investors, by contrast, seek out depressed and overlooked stocks of companies where better days may be coming, but have not yet been anticipated by the crowd.

One key hazard with growth companies is the possibility of even a slight disappointment in the earnings news, which can send a stock with a high price-to-earnings ratio tumbling.

But value stocks come with risks as well. Maybe a hoped-for turnaround never will materialize. Even if it does, it can take months or years for the market to get the message.

In practice, definitions of growth and value can vary significantly from one investor to another. But many mutual funds clearly favor one objective over the other.

The Morningstar Mutual Funds research service, in its “style box” system for classifying funds, sorts each stock fund into one of nine groups - large, medium and small-capitalization growth; large, medium and small-cap value, and large, medium and small-cap blend.

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