Growth stock works better in recession? It’s just different from my ‘common sense’… Q: A recession is expected in an economy within the next year. Portfolio Manager A has shifted more of their stocks from the financial industry to the health care industry. Portfolio Manager B has shifted more of their stocks from the technology industry to the utility industry. Which of the following statements is most accurate regarding the performance of each manager? A) Portfolio Manager A is expected to underperform the broad market while Portfolio Manager B is expected to outperform the broad market. B) Portfolio Manager A is expected to outperform the broad market while Portfolio Manager B is expected to underperform the broad market. C) Portfolio Manager A is expected to outperform the broad market and Portfolio Manager B is expected to outperform the broad market. The answer is B
bottoms up bottoms up hellscream
For purposes of thinking inside the CFAI box, growth is better in downturns. For the real world, thats the biggest BS i’ve ever heard and a huge generalization.
survivorship bias…few growth firms during recession.
Crazy ‘CFAI box’! Thanks, markCFAIL Guess I have to convince myself to this BS for the exam
I wouldn’t say this is bs in the real world. In times of recession, growth stocks are more scarce, so investors value them more. When investors value them more, demand for these stocks go up, driving up the stock prices. This happened in the latest crisis when growth outperformed value for some time. Usually though, value tends to outperform.
Your right. Clearly investors valued apples 30%+ annual growth rates when it fell to below $70/share in 2008.