MENU

Value Investing or Growth Investing?

moneyThere are many different ways to invest in the stock market — day trading, growth investing, and value investing, to name a few. Which is the best method? If you want to gamble, become a day trader. If you are serious about investing your money in a disciplined fashion, consider value investing or growth investing. Or, why not take the best of both worlds? After all, that’s what the world’s greatest investor, Warren Buffett, has done.

What is value investing?
Broadly defined, value investing means buying a stock at a discount to its intrinsic value, or the fair value of the business. The tough part is the process of valuing a company. How do you value brand power, competitive advantages, customer loyalty, growth opportunities, or a spectacular CEO? You don’t. At least that’s what the hard-core value investors choose to do. They focus on asset plays, a strategy in which investors buy companies at a discount to the value of their tangible assets.

However, companies sometimes trade below book value and also suffer the unfortunate circumstances of a declining industry. In these cases, traditional value investing won’t do you any good.

What is growth investing?
In growth investing, investors throw out valuation altogether. They look for excellent businesses with outstanding long-term growth prospects, investing on the premise that excellent businesses, over time, will outgrow their premium valuations. There are some good traits to growth investing, but it’s too simplistic; valuation might not always matter, but most of the time it does.

Combining value investing with growth investing
When value investing and growth investing are combined, investors look for reasonably priced, excellent companies to hold for the long haul. In this case, valuation is a concern, but investors don’t need to quibble over a few dollars. It turns out that it’s tough to buy excellent businesses at prices that seem undervalued anyway, so this opens the door to plenty of new opportunities.

Baidu makes a great example. The company may trade at 17.5 times earnings and seven times book value, but its leadership in online search and digital advertising in China gives the company significant growth opportunities over the long haul.

The Warren Buffett Way
Combining value investing with growth investing allows investors to choose among top-notch businesses, buy at reasonable prices, and avoid the major volatility of strict growth investing. It may sound Motley, but it’s an excellent way to invest. Don’t take our word for it; take it from Warren Buffett: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Click here now  for your   FREE   subscription to   Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by  David Kuo ,   Take Stock Singapore   tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

Like us on Facebook   to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.

All information is provided by The Motley Fool Singapore Pte Ltd, a licenced investment advisory research provider (MAS Licence No. FA100056-1). Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only. It is not intended be personalised investment advice or a solicitation for the purchase or sale of securities. Before purchasing any discussed securities, please be sure actions are in line with your investment objectives, financial situation and particular needs. International investors may be subject to additional risks arising from currency fluctuations and/or local taxes or restrictions. The information contained in this publication are obtained from, or based upon publicly available sources that we believe to reliable, but we make no warranty as to their accuracy or usefulness of the information provided, and accepts no liability for losses incurred by readers using research. Recommendations and opinions are subject to change without notice. Please remember that investments can go up and down, including the possibility a stock could lose all of its value. Past performance is not indicative of future results.

Copyright © 2018 The Motley Fool Singapore Pte. Ltd. All rights reserved. Company Reg. No. 201227853N