Growth Vs Value Investing

Will Semsch

October 11 2016

Growth vs Value Investing

        According to Warren Buffett, “Market commentators and investment managers who glibly refer to "growth" and "value" styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.” Buffett wrote this in a letter to his shareholders in 2000. Since we are assigned to write about value vs growth, I thought it might be interesting to read an article titled.  “Warren Buffett: Forget about Value vs Growth.”

To learn more about value vs growth investing a read an article called “Growth vs value investing” by Fidelity investments. Generally speaking the distinction between value and growth investing can be seen in how managers choose pick stocks. Growth stocks are usually companies in a younger stage of their life.  These companies are seeing high top line revenue growth and use their revenues to re-invest in the company.  This leads to a company that will see a lot of growth in a number of areas. Growth stocks typically have high valuations which leads to heightened p/e ratios. Growth stocks are a bit riskier than value stocks.  

Value investing takes a bit of a different approach. Value investors are looking for stocks that are underpriced for one reason or another (i.e. poor earnings in a quarter or poor economic growth) and aim to buy the stock low and when it reaches the value they believe the stock should be, it is then sold. Value stocks usually have lower p/e ratios and often pay more dividends than growth stocks.

Getting back to Wareen Buffett, he believes that growth and value go hand in hand when looking at investing. I found it very interesting that he believes the distinction between value and growth investing is too shortsighted. Value investing focuses on finding stocks whose market price is lower than the company’s intrinsic value.  Buffett says that this is the only way to invest, which seems kind of obvious, but he says that the growth of a company is often a big part of a company’s value.  In that sense, the two different types of investing kind of overlap.