Are Growth Stocks Dead?

Have you heard the saying, "if it's in the news, then it's in the stock?" If you have watched CNBC recently, you would constantly hear the narrative that value stocks are back and growth stocks are done. Meanwhile, value stocks are already up significantly from their lows, and growth stocks are already down significantly. While I am not suggesting that this dynamic won't continue, I am suggesting that generally speaking, by the time an idea becomes mainstream, it is frequently too late. And the consequences for the average investor are often poor decision-making. Let's look at an example.

In growth's corner, we have the Ark Innovation ETF (ARKK). This represents the highest-flying tech stocks over the past fifteen months. In value's corner, let's go with the airlines and energy, two of the harder-hit industries from COVID. We will use the U.S. Global Jets ETF (JETS) and the SPDR Energy Select ETF (XLE).

Since November, ARKK is up 34%. Not bad, eh? However, JETS is up 59%, and XLE is up a whopping 75%! Looking more recently, since ARKK peaked in February, it is down a sizeable 22%. The others? JETS is up 19%, and XLE is up 14%. All this means is that if an investor is making their investment decisions based on what CNBC says, you will often be buying into consensus trades, which usually means you're buying high. Why is XLE a better buy today now that it's up 75% since November? Is it less risky today than it was then? Throughout the history of the markets, investors as a whole have proven time and time again to be bad at timing, buying when the risk is high and selling when the risk is lowest.

So are growth stocks dead? Well, relative to value, they've been dying slowly for months now. But by definition, growth stocks are growing, so how can they be dead?

The Rules-Based Engine that Could

Invest SmarterBy David DeWittApr 30, 2020