, 7 tweets, 2 min read Read on Twitter
When Growth Stocks Don’t Grow

Tweetstorm, 1 of 6:

The S&P 500 Growth Index? P/E = 25. Broad market = 15.

But at least you get that big ROE, right? It’s not enough.

2/ The reciprocal of the P/E – the earnings yield – is low for SGX.

You’re thinking, “No problem. Growth stocks will grow out of it.”

One problem: arithmetic
3/ Multiply the percentage of earnings retained (the retention ratio) by the ROE to estimate future dividend growth.

Aha! Bigger. But it’s not enough.
4/ Starting point = $100 (indexes not investable). Here’s the dividends on that if they actually grew at such astronomical rates.

Equivalence occurs out in YEAR 16.
5/ And this was with generous dividend growth for SGX to exceed large cap core by ~3% annually for a generation.

If you want to play that game, be my guest.
6/ Moral of the story:

The S&P 500 Growth Index is ripe for a plucking relative to Core and Value, generationally.

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