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06 August, 2018

Where’s the Value?

Companies are often split into groups by fairly arbitrary characteristics - one which many commentators and investment professionals use is to categorise a company as either a 'growth' stock, or a 'value' stock, with 'growth' being those companies which might have good long term prospects, but are perhaps paying a smaller dividend now, and 'value' being where a company is paying more of it's cash as a dividend, but perhaps long term growth prospects are less.

As with so many such metrics this is a simplification of the real world, but it is an important measure that analysts use to build a spectrum of companies from those which are most 'growth' like through to those which most exhibit 'value' characteristics.

Historically 'Value' companies have been worth a bit more to an investor over time than 'Growth' companies.  This is not a requirement of investment, simply an observation, and therefore it is an open question as to whether this discrepancy will continue indefinitely, or at some point simply evaporate.

The attached article looks at the statistical evidence regarding this question, and whether it is still appropriate to consider this important metric.

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by John Stirling


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