Summary

• This overdue correction in tech is being hailed by many as a Great Rotation from Growth to Value.
• They are wrong.
• Yes, a spate of no profit - heck, no revenue - companies have been brought to market on the coattails of the truly great growth companies of today.
• But recommending a massive transfer of your capital to allegedly “safer” value enterprises is not the way to invest. You need growth and value together.

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This whole Value versus Growth narrative has just a little too much breathless drama in it.

Yes, there are companies selling at hope x greed x infinity. I and my clients even own a couple of them. But each position is no more than 2% of the total value of our Growth & Value Portfolio and less than 4% in the aggregate. And we call our model portfolio the Investor's Edge Growth & Value Portfolio for a reason.

We do not have to make radical changes to our positions every time the wind blows. We merely make incremental changes as real evidence accumulates that one asset class or sector or industry is in ascendancy while another may be beginning to lag.

For instance, we own healthcare, real estate and even some consumer staples companies. No fireworks here. Just good solid companies, ETFs and OMFs (the traditional Open-ended Mutual Funds.) I buy them for solid dividend income, steady progress against their competitors, and, yes, growth. It may not be spectacular cocktail-party-bragging growth, but the tortoises sometimes beat the hares and they do so without - what was that word? Oh, yeah, drama.

One example: I suggested for all readers' due diligence back in October Vector Group (VGR). The article was titled "Vector Group: Overlooked Growth, Value And Income, On Sale." You can see it here: Vector Group: Overlooked Growth, Value And Income, On Sale.

This consumer staple is the smallest of the US tobacco (and other holdings) companies like British American Tobacco (BTI), Philip Morris (PM), and Altria (MO), all of which we own for some clients or in one of my own portfolios. As you can see with a cursory look at the article, we bought it at $13.91. (We bought at $12.52 for subscribers but in the week I waited to give subscribers first crack at buying and to publish for everyone else,  it had risen to $13.91, so I will use that latter figure.)

On December 31, VGR spun off its real estate subsidiary, Douglas Elliman, which began trading as DOUG. We received one share of DOUG for every two shares of VGR. Yesterday I sold the DOUG shares at $10.32. $13.91 minus $10.32 (divided by half) means your cost basis in VGR, even at $13.91, would be $8.75. It closed today at $11.59, just three months later.

Boring old value? I don't think so. Value does not have to mean "something that pays a nice dividend but never moves much." Value can be and is our ballast for the portfolio.

I also own lots of "boring" materials companies in metals and mining that I believe have superb growth ahead of them. You may have seen my articles on Lithium Americas (LAC), Standard Lithium (SLI), the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR), or the Global X Lithium & Battery Tech ETF (LIT), among others. While the first two may be considered somewhat speculative to a pure value investor, LIT and GUNR hold some of the biggest old name value businesses.

Value and growth are not mutually exclusive.

Now About That Alleged Great Rotation

If you fall for this currently in vogue meme and sell your great growth companies because someone tells you their day in the sun is over, I believe you will regret it.

One example? Semiconductor companies are being sold off by those buying the hype that growth companies like these must yield to companies selling at lower PE ratios and PB (price/book) ratios that pay better dividends.

I consider this a fine opportunity to add to the growth portion of my, our clients' and our subscribers' portfolios. Almost every industry among each sector, worldwide, uses semiconductors and, increasingly, machine learning, in their business, be it meatpacking, mining, agriculture or boring old utilities.

There's currently a paucity of semiconductors worldwide. This is a supply and demand issue. The demand comes from nearly every single company in every single industry that wants the competitive edge of using the most advanced systems and processes available.

The supply "used" to come from numerous producers worldwide. Then came COVID. Semiconductor firms rely on a certain workforce and unique manufacturing processes. No workers, no semiconductors.

Today the semiconductor companies and the ETFs and funds that hold them are being sold off at fire sale prices. Moore's law is not dead. In fact, I believe we have not seen the real possibility that Moore's law will be overtaken by 4x, 8x or more.

In our subscriber portfolio, Growth & Value, we own, among others, Taiwan Semiconductor (TSM), the Invesco Dynamic Semiconductors ETF (PSI), and the VanEck Vectors Semiconductor ETF (SMH). All are falling like a paratrooper on his first jump. (Which is to say, chaotically, fearfully and inducing fear in all those around him.)

I appreciate that so many people want so desperately to sell their shares at this time. I appreciate it so much that I'm willing to do them the favor of buying from them.

I'm buying more of the semiconductor offerings. I will not be "averaging down" because we already own all three of these at lower prices. A true pessimist on the future of semiconductors will say I am catching a falling knife. Clearly, I disagree.

I'm willing to pay more today for these holdings than I originally paid. I am convinced that growth is neither dead nor even passé. I would rather own more of these issues - even at a slightly higher price.

I'm not looking to see these move 10% higher, which might push me to simply hold my current positions. I'm looking to see them much higher as more nations get whatever variation du jour of COVID comes along under control much more quickly, which leads to more workers returning, which leads to breaking the current bottleneck, which will lead to more semiconductors of greater and greater power and abilities being sold.

Growth & Value. You don't have to choose. I believe an intelligent portfolio that contains the appropriate elements of both prevents panic and provides the best returns.

Good well-diversified investing.