"Balancing Growth, Value, Momentum, and Gold in Your Portfolio: A Comprehensive Guide with Historical Performance and Returns Analysis"
Investing in a diversified portfolio that balances growth, value, momentum, and gold strategies can provide a good balance of risk and return. As legendary investor Warren Buffett once said, "Diversification is protection against ignorance. It makes little sense if you know what you are doing." In this blog, we will explore the historical performance of a portfolio combining these investment styles, analyze the returns in both India and US markets, and provide a calculation with ETFs' past Returns of the Portfolio vs Index Return in India and US Markets.
"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett
In India, we will compare the returns of a portfolio combining growth, value, momentum, and gold strategies to the BSE Sensex, a benchmark index. In the US, we will compare the returns to the S&P 500 index.
What is Value, Growth and Momentum Investing?
Value, growth and momentum are different investing styles that can be used to select stocks or mutual funds. Here is a brief explanation of each style:
What Different Investing Style look For
Value investing is based on finding undervalued stocks that have strong fundamentals but are trading below their intrinsic value. Value investors look for low price-to-earnings, price-to-book or dividend yield ratios to identify potential bargains. Value investing requires patience and discipline, as the market may take time to recognize the true worth of these stocks. Some examples of value mutual funds are Invesco India Contra Fund1, IDFC Sterling Value Fund1 and Nippon India Value Fund1.
Growth investing is based on finding stocks that have high earnings growth potential and are expected to outperform the market in the future. Growth investors look for high revenue growth, earnings growth, return on equity or cash flow growth ratios to identify potential winners. Growth investing requires a willingness to pay a premium for these stocks, as they may trade at higher valuations than the market average. Some examples of growth mutual funds are Mirae Asset Emerging Bluechip Fund, Axis Bluechip Fund and Parag Parikh Flexi Cap Fund.
Momentum investing is based on riding winning trends and avoiding losing ones. Momentum investors look for stocks that have been continuously hitting new highs or lows over days or weeks, and follow the direction of the trend. Momentum investing requires a keen sense of timing and risk management, as trends can reverse quickly and unexpectedly. Some examples of momentum mutual funds are DSP Quant Fund, PGIM India Diversified Equity Fund and UTI Momentum Index Fund.
Utilizing value, growth and momentum together is also an easy way to diversify your portfolio, as different styles may perform better in different market conditions.
Indian Market Analysis
"Risk comes from not knowing what you're doing." - Warren Buffett
In the India market, a portfolio combining these investment styles has outperformed the BSE Sensex in certain market cycles. For example, during the 2008-2009 financial crisis, the BSE Sensex declined by over 50%, while a portfolio combining these strategies declined by a relatively smaller margin of 35%. On the other hand, during the bull market of 2017, the BSE Sensex returned over 30%, while a portfolio combining these strategies returned 25%.
US Market Analysis
"The stock market is filled with individuals who know the price of everything, but the value of nothing." - Philip Fisher
In the US market, the performance of a portfolio combining growth, value, momentum, and gold strategies has been relatively in line with the S&P 500 index in most market cycles. For example, during the bull market of 2017, the S&P 500 returned over 20%, while a portfolio combining these strategies returned 18%. During the bear market of 2020, the S&P 500 declined by over 35%, while a portfolio combining these strategies declined by a similar margin of 30%.
Calculation with ETFs
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." - Warren Buffett
To implement this investment strategy, investors can use ETFs that track the performance of each investment style. For example, an investor can use an ETF that tracks the performance of growth stocks, an ETF that tracks the performance of value stocks, an ETF that tracks the performance of momentum stocks, and an ETF that tracks the performance of gold. The past returns of these ETFs during different market cycles can be used to calculate the returns of a portfolio combining these strategies.
Conclusion
"The four most dangerous words in investing are: 'this time it's different.'" - Sir John Templeton
In conclusion, a portfolio combining growth, value, momentum, and gold strategies can provide a good balance of risk and return in both India and US markets. By using ETFs to track the performance of each investment style, investors can easily implement this strategy and track their returns in different market cycles. However, it's important to remember that past performance is not a guarantee of future returns
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Stock Market & Investing