I enlisted in the G Score Corps today.
What kept me back on this decision was ....
1. I noticed that in several "growth" ETFs and prior AAII articles on "growth" the terms "cyclical" and "growth" were used interchangeably, but the authors did not specify -- or justify -- that any relationship between the two terms existed.
2. I noticed many ETFs, that have the term" growth" in their name or mission statement, do the same.
3. I read several articles on factors (some at AII) that stated that growth strategies just do not work over the long run (because they are anomalies and anomalies do not persist due to the "efficient market hypothesis."
All that sloppiness in the academic and financial "literati" worried me about the viability of this venture.
The AAII Growth Team analyses may be the first to do so. So far, their spreadsheets have been helpful in "bubbling up" stocks that demonstrate relationships between fundamental "growth" characteristics and "growth" as an outcome.
I am still worried about investing in growth stocks when rising interest rates are dampening CapEx. To me, that elevates the importance of cost control and cash flow generation as the prime movers of "growth." But even so, we still have to contend with rising market "bearishness" to find buyers to drive up prices of "growth " stocks.
A packed my parachute. I plan to ring the claxon one time. Then, I'm out the hatch. I do not intend to be at the scene of the crash. If we get through this, the first round is on me.
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BARRY JOHNSON
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Original Message:
Sent: 11-08-2022 15:38
From: BARRY JOHNSON
Subject: The battle between cyclical versus secular growth stocks
Jenna, this is a very interesting concept.
I am familiar with the labels "secular" and "cyclical" being used to characterize the 11 SPX sectors, specific industries, and individual stocks.
I researched this concept at two of the largest brokerage sites. I can't share their proprietary materials, but one of the most interesting things I observed was in a chart that aligned the 11 SPX sectors with the 4 phases of the business cycle. What I noticed was that there is no predictable alignment between the 4 phases of the business cycle and each of the 11 sectors. About 50% of the time, about 50% of the sectors were neutral to the effects of the business cycle. To me, that suggests that the business cycle is a very weak indicator for predicting sector performance.
Where I come from, we call that a coin flip. Most investors -- including me -- would reject an investing opportunity that is based on random odds. My threshold for investing is a 95% confidence interval. By comparison, it would take 8 winning coin flips IN A ROW to get to 95% certainty. So, I do not put much value on these labels.
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BARRY JOHNSON
Original Message:
Sent: 10-10-2022 09:59
From: Jenna Brashear
Subject: The battle between cyclical versus secular growth stocks
Hi everyone,
We've been discussing the importance of understanding the key differences between cyclical and secular growth stocks in AAII Growth Investing Blog. Companies expanding on a secular basis are growing without regard to the overall business economic cycle. In contrast, the fortunes of a cyclical company depend upon the business cycle. Do you tend to learn towards investing in cyclical growth stocks in the short-term or secular companies for the long-term?
Thanks for sharing your perspectives!
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Jenna Brashear
AAII Community Manager
Chicago, IL
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