The cycle has turned. Long gone are the days when growth stocks sat in the U.S. market’s driver’s seat and the biggest of big stocks—think, Facebook, Amazon, Apple, Netflix and Google (now Alphabet)—delivered outsized returns. Over the past year, these former highflyers came back down to earth and value stocks led the way.

The question is; where do we go from here? Is it time to buy those growth giants at bargain prices? Or will value stocks continue to carry the baton? And better yet, just what constitutes a growth or value stock these days? According to a recent Bloomberg article, not even the index providers can agree.

To me this argues for eschewing labels and holding a well-diversified portfolio.

The basic argument for buying yesterday’s pre-eminent growth stocks and the funds that hold them is pretty simple—prices have come way down. From its peak in November 2021 through December 2022, Growth Index (VIGAX) fell 32%. And if you look at stocks of firms like Apple, Amazon, Microsoft and Google (or Alphabet as it’s known in the stock market)—some of the most profitable, best run companies in history—prices have fallen roughly 30% to 50% from their highs. I’d argue that, as a long-term investor, anytime you can buy great companies after their prices have fallen by a third or been cut in half, well, it’s a good time to do so.

On the other hand, I can also boil the argument in favor of value stocks down to one sentence: Growth stocks outperformed for so long and by so much that, even though traditional value stocks have had a relatively good 12 month run, there is still more room for value stocks to run. Said another way, one year doesn’t make up for more than a decade of underperformance.

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