The LifeSpan Letter

Mutual Funds

           "The Value in Value"

Everyone loves a sale!

The one place we don't purchase when things are on sale is the stock market. Most investors look at a stock's downward slide and fear takes hold, without regard to the companies underlying fundamentals. We tend to buy on good news and sell on bad. When mutual funds own stocks that one might think of as "on sale", they are often referred to as value funds. These value funds invest in companies others have pushed aside in favor of stronger growth companies. Lately value stocks are names that not long ago were associated with growth, names like General Electric, Pfizer,

Home Depot and Intel.

Historically, value stocks have done very well. They have outperformed growth stocks 65% of the time from 1969 until 2005, providing an annualized return of 11.5%. Even in 2006 when the S&P was up 16.3% value has lead growth.The following is the annualized total return for growth and value stocks for large, midsize and small company stocks from 1969 through 2005:

Large Companies                10.8% value

                                        9.1% growth

Midsize Companies            14% value

                                        9.7% growth

Small Companies                11.5% value

                                         9.2% growth

*Source: Ibbotson Associates

There are no hard and fast rules as to what a growth stock is versus a value stock. Often when a stock has a low P/E,

price/earning, ratio it is considered a value stock. Those with a higher P/E ratio are usually considered a growth stock. The lower the P/E, the less you have to pay for the stock, relative to what you can expect to earn. Finding the price to earning of a stock can be done by:

      P/E Ratio  =     Price per Share

                            Earnings per Share

Are your investments more growth to value oriented? Is there an approximate mix? The first month or two of the New Year is always a good time to analyze your 401k, Thrift Savings Plan and other savings and investment portfolios.

So much of investing is based on your objectives and risk tolerance. If you are seeking long term growth and not more immediate profits and if your tolerance for risk is limited; you may want to tilt your portfolio of investments more toward value. Every active investor knows the disclaimer used by companies and investment advisors regarding past performance not being an indicator of how well a stock or mutual fund will perform in the future.

That said, understanding the value of value stocks and mutual funds in your investment mix could well lead to stronger long term performance.

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