Imagine there were only 2 categories of stocks: short-duration and long-duration.
Short duration stocks are earning lots of cash now, paying high dividends or doing buybacks, and trade at compelling valuations. However they are not growing, and a case could be made that they are invested in yesteryear's technologies and business modes, which are ripe for disruption. Investors anticipate future earnings will look something like:
Y1: $10
Y2: $10
Y3: $9
Y4: $8
Y5: $8
Y6: $7
...
Y15: $0
This stream of income is worth something, and analysts use discounted cash flow methods to value the company based on their projections.
Long-duration stocks are not earning much money now, and may still be making losses, and they generally pay no dividends, but expectations are high for earnings in the future because they have fast-growing technologies and business models. They tend to trade at high multiples of current earnings metrics, because nobody is buying them for their current earnings, they're buying the distant future. Expected earnings are the opposite of short-duration, and look something like:
Y1: $0
Y2: $0
Y3: $4
Y4: $6
Y5: $8
Y6: $10
...
Y15: $50
Again, a DCF analysis turns these projected cash flows into a present value for the company.
The reason I called them short-duration and long-duration instead of value and growth is because we need to think about the timing of our retirement cash flows.
If all our cash flows are from short-duration companies (e.g. a dividend portfolio), then our portfolio will eventually be rocked by disruptions (e.g. our brick-and-mortar retailers will be disrupted by e-commerce, our coal utilities replaced by now-cheap solar, and our manufacturers will be disrupted by cheaper overseas competitors) and we'll be holding a bunch of obsolete, money-losing companies cutting their dividends and buyback programs.
If all our cash flows are from long-duration companies (e.g. all those people in ARK funds), then we will have to fund our retirement by selling shares rather than through dividends. Also the present value of our distant future cash flows is more volatile than for short-duration companies, so we'll often be selling shares into downturns. The distant future might be bright, but getting there with any shares remaining in your portfolio is the challenge.
Dividend investing / short-duration investing hasn't been working lately because the pace of innovation / obsolescence has been increasing, which has caused short-duration companies to deliver disappointing earnings trajectories. GE is probably the poster child.
