Not all “hype” is good hype. Some of it is… but certainly not all of it.
Jon likes hamburgers, but I prefer chicken sandwiches. Not just any chicken sandwiches, but Chick-fil-A sandwiches, specifically a #2 deluxe with a side of fries, please. There’s a reason this company is the #1 fastest-growing fast food chain in the country – they live up to their good hype.
Like fast food sandwiches, stocks can have a lot of chatter surrounding them, but which stocks are actually worth the hype?
Growth stocks and growth ETFs have some seriously good hype, and not without reason. They can produce aggressive returns in up markets, and faster growing earnings should allow for higher returns over market cycles. Many portfolio managers rely on this good hype – put your money into growth stocks and watch them grow, grow, grow! That’s some serious hype. But at what costs? As we’ve recently seen again, those very same fast-growing issues often carry with them substantial downside risk when they correct.
Value stocks and value ETFs fly more under the radar, but they consist of tried and true companies that have outlasted many of their competitors and face fewer challenges during economic reversal. Prudent Man Theory teaches us that investing in blue chip companies with durable income allows the investor to ride out difficult times… and to the long-term investors go the higher long-term rates of return.
Unlike fast food restaurants, some stock choices like aggressive high-growth stocks, especially for conservative retirement funds, are just not worth the hype. A portfolio without a durable source of income is like ordering your favorite sandwich that’s missing the special sauce – not worth the bite!
