Here we look at equity styles.
Another key way investors classify stocks.
The two main styles are known as growth and value growth Stocks are companies with strong potential for earnings expansion.
Investors expect these businesses to grow faster than the market, and that expectation comes at a price.
Their shares often look expensive on traditional metrics like price to earnings or price to sales ratios because investors are paying today for profits they believe will arrive tomorrow.
Technology companies are the classic example.
Innovative, fast growing, and often volatile.
When those growth plans succeed, the rewards can be impressive, but if reality falls short of expectations, those same stocks can fall quickly too.
Value stocks, by contrast, are almost the opposite.
They're the diamonds in the rough companies that may have been overlooked or fallen outta favor, but whose underlying businesses remain fundamentally strong.
They might not be expanding rapidly, but they generate reliable cash flow, pay steady dividends, and typically trade lower valuation multiples.
Think of it like real estate.
A growth investor hunts for an up and coming neighborhood with soaring potential.
While a value investor looks for a solid home selling below what its rental income would justify.
In simple terms, growth stocks are expensive 'cause the market expects rapid expansion.
Value stocks are cheaper because they're seen as slower or temporarily outta favor while remaining sound investments underneath.
Neither style is inherently better.
They just shine at different times in the market cycle.
Growth stocks tend to perform best when interest rates are low, and earnings momentum is strong since future profits are worth more when borrowing costs are low, but they often lag when rates rise or when economic momentum cools value.
Stocks often in areas like financials, energy, or industrials usually perform better during early recoveries when economic activity picks up and investors rotate into more cyclical names.
And during long bull markets driven by innovation and optimism, growth typically takes the lead.
Again, we can see that pattern clearly in this chart.
The blue line represents the Vanguard s and p 500 growth ETF, while the green line shows the Vanguard s and p 500 value ETF growth stocks fell sharply in 2022 as interest rates surged but rebounded strongly through 2023 and into 2024.
As technology and communication chairs regained strength, value, stocks moved more steadily with smaller swings, less drama, and fewer surprises.
Over time, the better performing styles tend to rotate between growth and value, what professionals call the growth versus value rotation.
That's why many experienced investors rarely commit to one style alone.
Instead, they blends the two holding growth for long-term potential and value for income and resilience.
The balance shifts as conditions change, helping portfolios stay diversified and better positioned through different stages of the economic cycle.
