Value Versus Growth II
I continue to struggle with the Growth vs Value designation (never mind where to invest). According to Buffets letter, they are joined at the hip (growth being an important part of value), whereas you indicate that there is a real difference between Value and Growth.
Does Value as a category of stock arise from the way it is priced or is it solely dependent upon the condition of the company? Is the Growth designation simply a function of the rate of change of earnings (or some other financial measure) or is it related to the eagerness of buyers?
If I am reading you right, you are saying that value applies to a stock (not a company), and that value investing does not require (earnings) growth to be successful, whereas growth investing is paying a premium, and thus requires sustained, substantial earnings growth to be successful (because you are paying so much for the shares).
It always seems like value stocks are the ones investors dont want (if people are paying a premium, it is not a value stock). If few people are interested in buying the stock right now, when the underlying business is fine (or at least unimpaired), why would they be willing to pay more in the future? It seems like that would only happen if earnings grow (so it is a growth company?) or if people decide they would like to pay more for the same earnings. Are future buyers going to pay more because they see that earnings simply arent lling? Or is most of the return going to come through dividends and/or share buybacks?
This seems like something very fundamental, but the amount of confusing comments (around the internet) about these terms seems second only to confusion related to the term risk.
Imagine for a moment that you had the influence over a company such that you forced them to liquidate it. Going out of business. Selling everything. With a company characterized as a value stock, you would make money off of such a venture. With a growth stock, you would certainly lose. Growth stocks are going concerns, and need to continue in operations in order to increase their value. Even a value stock does not generally want to liquidate, but they dont need to grow much to maintain the value of the enterprise.
With value stocks, most surprises are positive, because expectations are low. With growth stocks, most surprises are negative, because expectations are high.
Buffett is right. Value and Growth are joined at the hip. What he means by that is that a company with predictable growth deserves a higher valuation, with which I totally agree. The stereotyping of growth and value stocks stems from human prejudices where people segment the market into two or three areas:
Value is a question of price only. There is no such thing as a bad asset, only a bad price. I like buying growth companies, and I do so when they are offered to me at bargain prices. I will pay up a little for a growth company, in the same way that I would pay up for bonds of higher credit quality, while losing a little yield, but not a lot of yield.
This is not to say that all value investing will succeed. I have my share of ilures. The idea is to tip the odds into your vor by buying things that are out of vor relative to their current assets, or likely future earnings (or free cash flow, for the advanced).
Risk is a question of permanently losing capital. That is the downside on which all investors should focus. Though I do lose money on some stocks that I buy, my goal is to lose money on none of the stocks. If I cover the downside, the upside will take care of the rest, because the goal of a value investor is to not lose money over the long haul.
Greece Decision May Put US Market On A Dock; Hot Stocks Of The Day: TWX, CMCSA, SNE, QCOM, NWSA, YHOO
By:iStockAnalyst
Mobile Learning and Native PowerPoint Content Contribution now Supported by OutStart LCMS – Evolution 2012 Module
for articles from more than 500 contributors, press releases, SEC filingsvalue versus growth stocks and full text news from more than four thousand sources.
Fundamental data is provided byZacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix andQuotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers&39; website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
We prefer not to publish articles related to OTCBB or Pink Sheet Securities. We do not accept articles containing offesive language, racial remarks, / ography beyond the requirement of the story.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.