office-3295556_1920

‘Value’ vs. ‘Growth’ Investing

September 2019

A lot of time is spent by some sections of the investment community, or in our opinion wasted, trying to label their investment approach as either ‘Value’ or ‘Growth’.

We see this as a futile argument and the focus should be on the total investment returns generated, not the label that is assigned to how the returns are achieved.

The strategy that sits at the heart of value investing is to buy companies that have fallen out of favour and are undervalued, or just unknown, but have good fundamentals and will eventually increase in price.

Growth investors are concerned about capital appreciation and invest in companies that have demonstrated better than average gains in earnings in recent years. They are not perturbed that traditional metrics, such as price-to-earnings or price-to-book ratios, are indicating the stock is over-valued. 

Interestingly, Warren Buffett and his mentor Benjamin Graham pioneered the ‘Value investing’ style and have been rather successful at it.

It’s difficult to be critical of Buffett but, by his own admission, he has been unable to grasp the metrics of the technology growth stocks, which has seen his returns fall behind that of the S&P 500 index this past decade.

Growth investing has worked well with technology stocks like Facebook, Amazon, Apple Netflix and Alphabet (Google), otherwise known as the FAANG stocks, over the past decade.

Although these companies are world leaders and established household names now, what previously kept investors like Buffett away from these stocks was their high stock price.

Global monetary policy has seen interest rates remain low for more than a decade since the GFC. It is no coincidence this has occurred during the longest bull run in market history, which created an environment in which newer, growing companies could flourish.

At Cutcher & Neale, we don’t define our investment philosophy as either ‘growth’ or ‘value’.

We look at a stock from an industry level and the long term macro-economic themes behind it.

From the industry level, we identify the best businesses with these long-term tailwinds. Not looking at the company through either a growth or value lens allows us to invest with no constraints.

If you look at the Cutcher & Neale portfolios you could think they are dominated by ‘growth’ style stocks. At present, growth names are largely the market out-performers that have created the greatest value for our investors.

If we do see a significant market correction, we could turn to being ‘value’ investors if the opportunity presents itself, but this would be just be the result of our investment process, that enables us to adapt to all conditions, not because we are labelled ‘Growth’ or ‘Value’.

We’d much rather talk about total returns, which is what matters at the end of the day.

Should you wish to discuss this or any other investment related matter, please contact our Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

 

Recent Posts

Blog Tags