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What Are Growth Stocks?

Growth lies in the eye of the beholder.

Nicolas Rabener
10 min read
23 Jan 2023

SUMMARY

  • Growth stocks can be defined via valuations, fundamentals, or performance
  • These stocks have generated essentially zero excess returns since 2005
  • Neither has the inverse basket (low valuations, low growth, low momentum)

INTRODUCTION

When Yale history professor Sherman Kent interviewed 23 NATO officers on their interpretation of probabilistic words in 1964, the results were surprising and concerning. The probability associated with the word “probable” ranged from 25% to 95%, depending on the officer. Naturally, this begs the question of how worried a military commander should be when he is informed that an attack is probable.

Although less concerning, such differentiated perceptions are common in the investing world. Take growth stocks, how exactly are these defined?

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