The debate about value and growth has once again hotted up as many investors believe that value investing has suffered in the recent past as several growth companies, particularly in technology and other arenas, reward investors handsomely.

Is the debate about value and growth worth re-visiting?

Is there really a difference, and where do the two meet?

Howard Marks touched upon many of these serious questions in his recent letter. We read the entire letter and, for quick reading, marked or highlighted parts which you can download from the link provided below.

 

https://jmp.sh/RKygo1Y

(If you do not find the document write us at feedback@100bagger.com)

A para from the letter

Value vs. Growth

Over the last 80-90 years, two important developments occurred with regard to investing style. The first was the establishment of value investing, as described above. Next came “growth investing,” targeting a new breed of companies that were expected to grow rapidly and were accorded high valuation metrics in recognition of their exceptional long-term potential.

It seems likely that the label “value” was applied to the value school because one of its greatest early popularizers, Ben Graham, practiced a low-valuation style. Deemed “cigar butt” investing by his protégé Warren Buffett, Graham’s style emphasized the search for pedestrian companies whose shares were selling at discounts from liquidation value based on the assets on their balance sheets, which Buffett likened to searching the street for used cigar butts that had one last puff left in them. It is this style that Graham preached in his Columbia Business School classes and his books, Security Analysis and The Intelligent Investor, which are considered the bibles of value investing.

His investment style relied on fixed formulas to arrive at measures of statistical cheapness. Graham went on to achieve enviable investment performance although, funnily enough, he would later admit that he earned more on one long term investment in a growth company, GEICO, than in all his other investments combined. Buffett, the patron saint of value investors, also practiced cigar butt investing with great success in the first decades of his career, until his partner, Charlie Munger, convinced him to broaden his definition of “value” and shift his focus to “great businesses at fair prices,” in particular because doing so would enable him to deploy much more capital at high returns.

This led Buffett to invest in growing companies – such as Coca-Cola, GEICO and the Washington Post – that he could purchase at valuations that were not particularly low in the absolute, but that he found attractive given his understanding of their competitive advantages and future earnings potential.This led Buffett to invest in growing companies – such as Coca-Cola, GEICO and the Washington Post – that he could purchase at valuations that were not particularly low in the absolute, but that he found attractive given his understanding of their competitive advantages and future earnings potential.

 

Here are few highlighted parts from the MEMO

 

About value investing

 

Perception vs. Reality

 

 

Evolution of Warren Buffett as Value Investor

 

 

Please download and read his letter, which has many thought-provoking ideas marked for quick reading. Then, give us your feedback.

Best Regards,

100Bagger Team

 

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