On Zero-Yielding Growth Stocks

by: Where is the Yield?

My take on Apple (NASDAQ:AAPL) drew out the following comment from Tim Bueneman:

"Really weird - and naive comment! Every study I have ever seen of the stock market's biggest winners historically (studies by Wm O'Neill, Ken Fisher, ThinkEquity, etc., etc.) show those stocks usually had nil or no dividends. You shouldn't apply value stock measurements to growth stocks. I used to be a research director at a large investment firm, and I'd FIRE any analyst who made such a comment!"

While I've been called worse names than that, and for good reason at times, I would still like to answer Tim's argument. This sort of exchange hardly ever ends up with one party convinced and the other triumphant. Mostly it ends with two parties exhausted. But it's still worth the discussion.

Tim's first argument is that various studies of winning stocks have found them to be predominantly zero-yielding growth stocks. He's right. But these studies are only capable of picking winners after the fact. You can't predict which stock is the Cisco (NASDAQ:CSCO) or Microsoft (NASDAQ:MSFT) of tomorrow. Until someone comes up with a time machine, one has to acknowledge that a system that can only pick winners after they've already won, is not really a system at all.

Another problem with Tim's quoted research is the source of it. It's hardly surprising that a famed growth Guru such as Bill O'Neill, recommends growth.

Tim then goes on to say: "You shouldn't apply value stock measurements to growth stocks". The point I'm trying to make is that you shouldn't own growth stocks. period.

His final comment is true enough. Sadly, analysts who issue Sell ratings and say companies are overvalued do get fired from "large investment firms". It's no secret that Sell ratings are a rarity. The reasons behind this fact are well-known, and obviously serve as a warning to everyone, value investor or otherwise, to use only truly independent research.