If we look at this Google Finance chart comparing Vanguard Growth and Value, you can see over ten years Growth is the better bet, but MORE IMPORTANTLY, they are highly correlated, one goes up, the other goes up, etc.
Now just for fun, I added a 3rd ETF, a highly overhead Value, that gives Vanguard Growth, VIGAX more of a run for its money.
With the money that I have set aside for personal investing, more as a hobby than anything else, I am starting to fall into a bit of a trap. As detailed in other posts, my family did well with big plays on spectacular growth stories. We took our profits are are largely on the sidelines trying to get back in. With an 8 year bull run behind me, I am expecting some buying opportunities. My brain keeps being focused on large, safe, companies and getting them at a good price. There is nothing wrong with this strategy, except that unless I really devote a lot of time and brain power, I will simply be correlated with various ETFs and could have used the time to do other things.
How to break the code?
1) My first temptation was to buy some RPV on a dip. Yikes, what am I NOT thinking? While it is performing very well compared to Vanguard's value, it is still massively correlated and for good reason, the top choices of the fund are in the 2% or slightly less of the total fund range. That means they do a great job of spreading risk across multiple companies, but so do all of my other ETFs. No!
2) I could go overweight with a company that appears to be undervalued and ready to ascend. That is every investor's dream. The problem with that is I only really know and understand a finite number of companies. No!
3) Try to figure out what the next macro trends are and the companies that stand to benefit. This strategy has two parts, getting in on the hype early and I think my family's successful investments in AMZN and TSLA were just that. Then we profit took and jumped out. But, the longer view of investing in, staying with, learning more about a few companies with the right business model, purchased at the right price, (WMT < 70, AMZN < 900 etc), is probably the best strategy. Some thoughts about Macro trends:
- Demise of malls, ok, people still need shoes and groceries, where will they shop?
- Overt consumerism, at some point people will wonder why they have closets full of clothes and drawers full of pocket knife, companies with really good, really useful products will be in good shape. In 2008 after the downturn there were a number of articles about consumerism is not sustainable, consumerism is dead and so forth, but while the message is muted in 2017, the numbers are there. And the link to the decline of shopping malls is clear and obvious.
- The robotic economy. From bricklaying to hamburger cooking, robotics are increasingly entering the workforce. Who is making them, who is selling them, who is using them, who is making money because they use them? the ETF ROBO is doing well, but has an almost 1% management fee. Buying on a dip might be a short term way to get some exposure.