Excerpted from Bogle on Mutual Funds by John C. Bogle, pages 69-71

The primary mainstream funds, as I noted, include growth funds and value funds. In practice, there is a soft distinction between these two stock fund classes. While their short-term returns have varied from one period to another, their long-term returns have been fairly similar, as Table 4-1 shows. Admittedly, looking at five-year aggregates blurs much of the distinction between the returns of these two stock fund categories. But on a year-by-year basis over an extended period, a slow cyclical pattern emerges in which first one type of fund leads the market, then the other. The upper part of Figure 4-1 shows the cumulative returns of both types of funds over the past 20 years; the lower shows the relative returns achieved by each fund type over the period. When the line is rising, growth funds are leading. When the line is falling, value funds are leading.

Note that value funds had their day from the end of 1972 to the end of 1976, received their comeuppance from 1977 to 1980, only to resume dominance through the end of 1988. The message of the chart, it seems to me, is that there are few profits - and lots of problems - in trying to predict the relative performance of these two investment styles.

Some further difficulty in distinguishing between these two basic types of funds is manifested in their portfolio holdings. Table 4-2 compares ten equity holdings (ranked in terms of percentage of assets) that comprise a substantial portion of the portfolios of both value funds and growth funds. The portfolio parallelism begins with Philip Morris, the largest holding in each fund group, but it hardly ends there. The overlap between the two columns confirms that the real-world similarities between the typical growth fund and the typical value fund are far greater than the differences. This process of mongrelization seems to have developed over the past decade. It means that the accepted broad definitions of equity fund categories are considerably less useful than each individual fund's specific investment characteristics.