In today’s weak stock market, will seeking growth find the best stocks to buy? Or might we do better with shares that look good value on fundamentals?
Growth stocks can be more volatile and can lose the most in a bear market. Scottish Mortgage Investment Trust is a good example.
It buys a lot of US growth stocks, and they’ve slumped. And Scottish Mortgage shares have lost nearly 60% since a peak in late 2021.
It’s still up 28% in five years so as a growth buy, it’s not been too bad in the long term.
New growth market
The fall does makes me think it could be one of the big winners when growth stocks turn back to, well, growth.
But there’s another side. It can be a risk if we think that what comes down must go back up. When growth stocks are in a bull market, even the junk can be boosted along with the good stuff.
A bear market can then shake things out. And some past darlings can turn out to be ‘jam tomorrow’ no-hopers.
Buy what we know
One that makes me scratch my head is Darktrace. It looks to have been hyped up in the past, and I think it soared way too high.
It’s down 12% over five years now. But it’s crashed by a whopping 70% since the peak of 2021. Is this a good one for growth stock gains now? I don’t know enough about cybersecurity technology to tell.
And that’s another risk. A lot of growth stocks are also tech stocks. And how many of us really understand what they do? It can easily go against the ‘buy what you know’ ideal.
Value shares instead?
So what about value shares? I think they can offer a lot less risk. But that might well come with having to wait a long time for any gains.
My example of that is Lloyds Banking Group. I first bought some about five years ago, and I’m still waiting for a recovery. I’ve had good dividends, mind. And that can be the saving grace of value shares.
After all, Warren Buffett is one of the best investors of all time. Since 1965, he’s made 20% a year on average. That’s mostly keeping away from tech or growth stocks and just buying good-value boring stuff.
Boring…
You know, banks, insurance, oil… cash cows like those.
So which are best at a time like this, value stocks or growth stocks? Well, there’s no right answer. For me, it’s mostly value, looking for good dividends. But I still like the odd growth stock every now and then.
The only answer must be for each investor to decide what they’re best at. And what they like. Oh, and how many years they might have ahead of them. And appetite for risk also matters.
Only one judge
In short, there’s only one person who can decide what’s best for any investor. And that’s the individual themself.
But buy something while shares are cheap — I think we should at least do that.
