growth and value investing

Copyright ©2005 Ibbotson Associates, Inc.

Growth and Value Investing

Securities offered through Lincoln Financial Advisors Corp., a broker/dealer,1300 S. Clinton Street, Fort Wayne, IN 46802-3506, Phone 800-454-6265.

Insurance offered through Lincoln affiliates and other fine companies.Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.

CRN200510-1003366

This is for illustrative purposes only and not indicative of any investment.An investment cannot be made directly in an index.Past performance is no guarantee of future results. 3/1/2005


What are growth and value stocks?

Growth stocks

• High growth rate of earnings, sales

• Low book-to-price, high price-to-earnings ratios

• Paying lower or no dividends

Risks

• Future growth does not occur as expected

• Book-to-price ratios rise unexpectedly, price-to-earnings ratios decline unexpectedly

Value stocks

• Slower growth of earnings and sales

• High book-to-price, low price-to-earnings ratios

• Higher dividend yields

• Turnaround opportunities

Risks

• Evaluation of stock as good value is misread

• Difficult to stick to value policy when prices are beaten down



Growth and value investing

Ending

wealth

Average

return

Large value

Large growth

Hypothetical value of $1 invested at year-end 1927. Assumes reinvestment of income and no transaction costs or taxes.

Year-end 1927–2004

$5,642

$859

$.10

$1

$10

$100

$1,000

$10,000

$100,000

1927 1937 1947 1957 1967 1977 1987 1997

11.9%Small growth

$1,165 9.6%

9.2%

2004

Small value $43,605 14.9%



Growth and value investing

Average

return

Ending

wealth

Small growth

Hypothetical value of $1 invested at year-end 1994. Assumes reinvestment of income and no transaction costs or taxes.

Year-end 1994–2004

$2.39

Large growth

$2.77 10.7%

9.1%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$.9$1

$6

$5

$4

$3

$2

Large value

$3.19 12.3%

Small value

$4.68 16.7%



Growth and value stocks 1969–2004Risk versus return

Standard deviation

Co

mp

ou

nd

an

nu

al

retu

rn

Large growth

Large value

Small growth

Small value

Mid growth

Mid value

3%

5%

7%

9%

11%

13%

15%

17%

15% 17% 19% 21% 23% 25% 27% 29%



*Based on the years 1928–1929. **Based on the years 2000–2004.

Compound annual rates of return by decadeGrowth and value by decade

2000s**1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s

Growth stocks

Value stocks

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%



One-year growth and value trends 1969–2004Growth versus value stocks

Data calculated using rolling 12-month returns.

An

nu

al

pre

miu

ms

Large growth

Large value

0%

10%

20%

30%

40%

1969 1974 1979 1984 1989 1994 1999 2004



Data calculated using rolling 36-month returns.

Three-year growth and value trends 1969–2004Growth versus value stocks

An

nu

al

pre

miu

ms

Large growth

Large value

0%

5%

10%

15%

20%

25%

1971 1976 1981 1986 1991 1996 2001 2004



12-month excess returns relative to the S&P 5001969–2004

Ex

ce

ss

re

turn

sGrowth and value excess returns

Large growthLarge value

-30%

-20%

-10%

0%

10%

20%

30%

1969 1974 1979 1984 1989 1994 1999 2004



Diversified portfolio represented by 50% growth stocks and 50% value stocks.

Large value

Large growth

Year-end 1997–2004Growth and value diversification benefits

$1,213

$1,387

$700

$1,000

$1,300

$1,600

$1,900

$2,200

1997 1998 1999 2000 2001 2002 2003 2004

Diversified portfolio

$1,315

growth and value investing

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