{"id":1704,"date":"2021-01-01T00:00:00","date_gmt":"2021-01-01T00:00:00","guid":{"rendered":""},"modified":"2025-04-07T15:47:12","modified_gmt":"2025-04-07T10:17:12","slug":"growth-value-while-investing-possible","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/growth-value-while-investing-possible\/","title":{"rendered":"Growth & Value While Investing. Possible?"},"content":{"rendered":"
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Recently I met a cousin of mine, Pranay who asked me, \u201cShould I go for high growth stocks<\/a> or look for value stocks?\u2019\u2019<\/p>\n\n\n\n

His question took me by surprise, given the fact that he had just started investing, but I assume he must have read up about these investing styles somewhere.<\/p>\n\n\n\n

It was even more surprising for me because till date, nobody had asked me this important question, not even people I know who have been investing for several decades now.<\/p>\n\n\n\n

Nevertheless, I told Pranay what legendary investor Warren Buffet had told the shareholders of Berkshire Hathaway<\/a> many years ago, \u201cValue and growth are joined at the hip\u2019\u2019.<\/p>\n\n\n\n

\u201cWhat does this mean? Can you explain in detail\u201d he asked with a confused look on his face.<\/p>\n\n\n\n

Even as you read this, I am sure you too must be having the same doubt after reading Warren Buffet\u2019s comment.<\/p>\n\n\n\n

Well what it means is growth is one of the parameters an investor needs to look at while investing in high value stocks. Irrespective of the fact, whether growth is positive or negative, it is an important factor which should not be ignored.<\/p>\n\n\n\n

Before we proceed further, let\u2019s take a look at what exactly growth and value investing approach means.<\/p>\n\n\n\n

Growth investing is all about looking for companies that have a potential to grow faster than others. Such stocks have low dividend yields and higher price-to-earning (P\/E) ratio and price-to-book value (P\/B) ratio.<\/p>\n\n\n\n

Growth stocks<\/a> generally tend to perform better when interest rates<\/a> are falling and company earnings are rising. However, they are the first to fall during economic downturns.<\/p>\n\n\n\n

On the contrast, value investing is all about buying undervalued stocks<\/a> for a market price below its intrinsic value. Such stocks have above-average dividend yields and low (P\/E) ratio.<\/p>\n\n\n\n

Value stocks, generally do well early in an economic recovery phase but appreciate slowly during a sustained bull market<\/a> phase.<\/p>\n\n\n\n

Most investors feel that \u2018Value\u2019 and \u2018Growth\u2019 belong to two opposite styles of investing. In fact in his letter to his company\u2019s shareholders, Warren Buffet himself admitted that he too used to think on the same lines previously, but realized that it is not the case.<\/p>\n\n\n\n

Here\u2019s an excerpt from Warren Buffet\u2019s letter:<\/p>\n\n\n\n

\n

“Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation, except to the extent they provide clues to the amount and timing of cash flows into and from the business. 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. Growth is simply a component – usually a plus, sometimes a minus – in the value equation.”<\/strong><\/p>\n<\/blockquote>\n\n\n\n

In simple words, the phrase \u2018Value and growth are joined at the hip\u2019 means that growth and value are closely connected. Instead of looking at growth and value as separate fundamental approaches, an investor should look at growth as a component of value, while investing.<\/p>\n\n\n\n

Read more:  How Long-term investing helps create life-changing wealth \u2013 TOI<\/a>. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

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