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As stated previously value investing over the very long term has provided excellent returns especially compared to growth. However, if you shrink the time line to 10 years you will see differing results. For example, 1990-2000 large cap stocks performed the best, with large cap growth leading the way at 18.1%. Small growth stocks were the worst at a 14.0% average rate. Large cap value returned 17.5% over this period and small cap value returned 16.1%.

So although a very long time horizon favors value stocks, in this specific case large caps stocks ruled over ten years with large cap growth being the best.

There are many different classess of stock that you can choose to diversify your portfolio. Growth and value stocks are just another way to distribute your investments.

Examing the growth of $1 invested in large cap growth, large cap value, small cap growth and small cap value on December 31, 1927-2000 you will find interesting results.

Value stocks outperformed growth stocks by a significant margin. $1 in small cap value has an average return of 14.2% with an ending balance of $16,027. Large value returns 12.4% average return with a balance ending at $5,170. On the other hand, small growth returned 10.0% and ended with $1,017 and large growth ended with $727 and a 9.4% return.

Obviously there have been periods of time that growth has outstripped value, but this information gives you insight on how to approach growth and value investing long term.

Growth and Value is another method of classifying stocks or portfolios because usually they will have many aspects of one or the other. Like sectors and asset classes, it is important to know when growth is in or out and when value is in or out.

Growth stocks are stocks of companies that historically have been able to grow their businesses faster than the average company and that growth is expected to continue. Because of this growth investors are willing to pay more for these sticks than they would for value stocks relative to current earnings. They reinvest their profit to continue to grow.

Value stocks are stocks of companies that historically have had slower growth in sales and earnings than average or recently experienced some type of trouble that caused the stock price to decrease. Investors, like Warren Buffet, see value companies to be turn-around opportunities where a change in management or business strategy could increase its potential for growth.Since value companies are not expected to grow quickly their yield will be higher to retain investors.

We have discussed the ying and yang of investing many times. Another way of examing stocks is growth and value.

Here are some characteristics of both:

Growth

• High growth rate of earnings and sales
• High price-to-book, price-toearnings ratios
• Reinvesting earnings in the business and paying little to no dividend

Value

• Slower growth of earnings and sales
• Higher dividend yields
• Low price-to-book and P/E ratios