View from the Observation Deck

1. As of July 31, 2012, the S&P 500 Growth Index had outperformed the S&P 500 Value Index for the past 5-, 10-, 15-, 20-, 25- and 30-year time periods.
2. This is quite unusual considering that the returns of value stocks have historically benefitted from the compounding of higher dividend payouts relative to growth stocks.
3. Growth stock investors are usually willing to pay a higher price-to-earnings (P/E) multiple than value investors, who tend to favor companies undervalued on a price-to-book basis.
4. Over the past 10 years, the average P/E for the S&P 500 Growth Index was 18.17, compared to 16.10 for the S&P 500 Value Index, according to Bloomberg.
5. When investors think of growth stocks they are likely to begin with technology companies. We all know what an impact technology has had on the quality of our daily lives.
6. The chart includes returns dating back 30 years. Do you know what the big technological announcement was on July 23, 1982? The FCC approved AM stereo radio. Times have clearly changed.
7. One of those changes includes the fact that the companies in the S&P 500 Information Technology Index now generate the second-highest amount of dividend income of the 10 S&P 500 sectors, according to S&P.
8. The point of our blog post today is to encourage investors to consider allocating a portion of their diversified portfolios to growth companies. They tend to be the ones driving innovation.