Value vs Growth Investing
- Value vs Growth Investing
Value investing and Growth Investing are often presented as two competing styles of investing. Indeed there are now many Exchange-traded funds available which claim to offer one of the two styles.
Performance of Value and Growth styles
For several years at a time, quite often one of the style of investing will perform better than the other. In the late 1990s growth style stocks significantly outperformed value style stocks. However, since 2000 value stocks have outperformed growth. Some people believe the performance of the two styles goes in a cycle, even viewing them as distinct asset classes, with a view to make strategic switches.
Warren Buffett on Value vs. Growth
Billionaire investor Warren Buffett has been highly critical of these styles. He has commented that investment ratios such as P/E ratio are no guide to value. In an excerpt from his 2000 letter to shareholders he wrote the following:
"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."
This is because Buffett believes the most important ratio is price/intrinsic value, and intrinsic value incorporates the growth rate of the business. However, this is a less practical measure than price/earnings since intrinsic value depends on the estimate of future cash flows, and can therefore be highly subjective.
ee also
Value investing
Growth Investing
Wikimedia Foundation.
2010.
Look at other dictionaries:
Growth investing — is a style of investment strategy. Those who follow this style, known as growth investors , invest in companies that exhibit signs of above average growth, even if the share price appears expensive in terms of metrics such as price to earning or… … Wikipedia
Growth Investing — A strategy whereby an investor seeks out stocks with what they deem good growth potential. In most cases a growth stock is defined as a company whose earnings are expected to grow at an above average rate compared to its industry or the overall… … Investment dictionary
Value investing — is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis . Although value… … Wikipedia
Growth At A Reasonable Price - GARP — An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of … Investment dictionary
Investing Style — In the context of stock mutual fund investing, refers to using one of three possible approaches — investing in value stocks, growth stocks, or a blend of value and growth stocks to create a fund portfolio. Value stocks are perceived to be less… … Investment dictionary
Value Partners — Infobox Company company name = Value Partners Management Consulting company type = Partnership company company slogan = Making the difference through results foundation = 1993 location = Milan, Italy key people = Giorgio Rossi Cairo, Vittorio… … Wikipedia
Value Fund — A stock mutual fund that primarily holds stocks that are deemed to be undervalued in price and that are likely to pay dividends. Value funds are one of three main mutual fund types; the other two are growth and blend (a mix of value and growth… … Investment dictionary
Socially responsible investing — Alternative Energy: One of many forms of sustainable investing Socially responsible investing (SRI), also known as sustainable, socially conscious, or ethical investing, describes an investment strategy which seeks to consider both financial… … Wikipedia
Net asset value — (NAV) is a term used to describe the value of an entity s assets less the value of its liabilities. The term is most commonly used in relation to open ended or mutual funds because shares of such funds registered with the U.S. Securities and… … Wikipedia
Growth stock — In finance, Growth Stocks are stocks that appreciate in value and yield a high return on equity (ROE). Analysts compute ROE by taking the company s net income and dividing it by the company s equity. To be classified as a growth stock, analysts… … Wikipedia