I’ve been a private investor for over 37 years, starting out soon after turning 18. Over the years, my strategy has evolved from my early, near-random approach to a precisely honed plan. My goal today is simple: buying cheap value stocks for dividend income, plus growth shares for future capital gains.
Going for growth
After the global financial crisis of 2007-09, value stocks fell out of favour. Investors much preferred the lure of go-go growth shares, particularly US mega-cap tech shares. As a result, the US stock market has outperformed the rest of the world in 12 of the past 13 years.
Fortunately, my wife and I were able to ride this wave, thanks to outsized exposure to US stocks. That’s good news, because the US S&P 500 index is up 55.6% over the past five years, whereas the UK FTSE 100 index is actually down 2.6% over five years (both excluding dividends).
Value stocks versus growth shares
Of course, the past is an imperfect guide to the future, especially where financial markets are concerned. But I suspect that buying value stocks (over growth shares) today might produce superior returns in the years ahead.
To illustrate my point, here are the basic fundamentals of the main US and UK market indexes:
| Index | Earnings multiple | Earnings yield | Dividend yield | Dividend cover | Fall from 52-week high |
| S&P 500 | 20.4x | 4.9% | 1.5% | 3.2x | 3.5% |
| FTSE 100 | 10.6x | 9.4% | 4.1% | 2.3x | 8.5% |
From these basics, it appears that the S&P 500 is roughly twice as expensive as the Footsie. Furthermore, the UK index offers almost three times the dividend yield of its American counterpart.
In addition, the FTSE 100 has lost close to 9% of its value since its all-time high of 16 February. Meanwhile, the S&P 500 is within 4% of its 2023 high of 27 July.
Never bet against America
Warren Buffett — my value-investing hero — has repeatedly warned investors to “never bet against America“. Given the Oracle of Omaha’s track record over the past six decades, I’m not one to ignore his wise words.
Therefore, my family portfolio is evolving, while largely consisting of two main ‘bets’. The first is a heavy weighting to US and global stocks, plus six individual holdings in US mega-cap stocks. Hence, I would guess that upwards of 50% of my family’s assets is tied to US success in some way.
My second bet is much more staid and perhaps even boring. My wife and I are overweight in FTSE 100 tracker funds, because the Footsie is packed with value stocks. In addition, we recently bought a slew of cheap UK value shares, so as to produce market-beating dividend income in future.
Value investing is not dead
Summing up, I remain absolutely convinced that value investing isn’t dead. Indeed, by buying cheap UK shares now, I expect to enjoy high and rising passive income as I age. Meanwhile, my wife and I have a hefty stake in the future of America, because we’d be crazy not to, right?
In short, for me, the choice isn’t value stocks or growth shares, it’s value and growth combined. And I’m perfectly happy to hedge my bets by sitting on the fence in this manner!
