Earnings volatility higher for growth or value stocks?

According to Schweser, earnings volatility is higher for value stocks than growth stocks. Can anyone explain to me why? I thought it would be the other way around. Thanks.

I thought it would be the other way around as well. I honestly don’t get this one…

Yeah. In the CFAI world, value stocks have more volatile earnings. Growth stocks have a smooth earning curve :slight_smile:

That can’t be. Got a reference to where it says that? (unless growth stocks are stocks that wll have zero earnings into the foreseeable future).

It got me too… couldnt figure out why schweser would say that.

Thats what Schweser says… i am sure CFAI also says it somewhere

Where does Schweser say it?

It should be Growth, no? Growth companies trade at multiples that price in the potential of expected growth. Downside is that growth could not materialize. Value companies tend to be in mature industries that have more stable earnings.

Schweser reading said value stocks tend to be in cyclical industries, so more earnings volatility


Schweser or CFAI, don’t remember, said that value investors bet on earnings turnaround (better earnings), therefore higher volatility. Ponpon

schweser def says value more volatile due to cyclicality… its a head scratcher though… anyone have CFAI take on it?

What SS is this?

Nevermind found it in SS11 I think and Stalla took a “hands off” approach as they didnt state anything like the above…

just came back home from work: + schweser, volume 3, page 137 + cfa, volume 4, page 121 Without “violating this forum standards of practice regarding copyrighted materials”, I will only say that both argue that value managers = cyclical firms = earnings going up or down with the economy = more earnings volatility Apparently, this means (sort of) that growth investors buy companies with superior earnings growth rates that last forever… So this is the truth and the right answer… only for exam purposes Hope it helps

I like the “sort-of” in hala_madrid’s comment. The book says that if a manager holds firms with high earnings vol, then according to “holdings based style analysis” the manager would be characterized as a value manager because he’s taking positions in cyclical firms. That doesn’t mean “earnings volatility is higher for value stocks than growth stocks” because they aren’t directly saying that. Schweser doesn’t say the world is “value” vs “growth” but says it is “value”, “growth”, “market-oriented” where their definition of market oriented looks like “other” to me.

Their market-oriented might be “core”… don’t have schweser though…

For every dollar of earnings movement a stock whose p/e is lower (value) would have higher sd than a high p/e stock. Isn’t this the rational?