One of the most constant debate me and my friends have is growth vs value. Though I also subscribe to the idea that growth investing is a good approach, value seems to be more backed by years of research and evidence. Growth investing is, usually, just backed by experience of the investor themselves and not by research. I know about Facebook and Amazon are great growth companies. But how many people could predict that? How many people with clear strategies can see the next Amazon, Apple or Facebook?
Amazon went from $14 a share to $1,900. An outstanding growth. But could an investor stay in this company for 20 years? Yes, that’s how long it took for Amazon to go from $14 to $1,900.
But this post is not about Amazon the stock. Though I own Amazon, Facebook and Apple stock, that is not what this post is about. I want to really know and track if that is the case. That growth could beat value. Let’s go and create a 5 stock portfolio of the most popular growth companies in the Philippines. If I would pick them they would be:
- AC – Ayala Corp
- ALI – Ayala Land
- SM – SM Investments
- SMPH – SM Prime Holdings
- JFC – Jollibee Food Corp.
These are the most popular, most liquid and highest growing companies in the Philippines. With PE ratios going from 20 to 40. Those are hallmarks of growth stocks. They have high PE ratios because people expect them to grow faster than its normalized PE ratio.
So lets record them. Let’s track them year by year. If Graham was right, most high PE stocks would come down to a more normalized PE. Growth will be beaten by value in the long run. But this is an experiment. Let’s compare it to our own portfolio while at the same time tracking their performance to prove if Graham is correct or not.
Prices as of August 28, 2019:
- AC – P996
- ALI – P43.90
- SM – P972.50
- SMPH – P38.80
- JFC – P290
Comparison with YTD performance:
Growth Stocks : +1.65%
PSE Index : -8.36%
Value Investing PH: +16.50%
Well? It seems pretty obvious that value investing works. But this is not a reliable outcome. We should wait for many years before we really know. What’s more, value investing seems to work when the market is down. While growth works well when there’s a roaring bull market. This would be a very interesting experiment don’t you think?
AC is now priced at P645.50/sh with a PE ratio of around 7.