Investor Corner/The asset classes/Equity Concepts
2.1.13 Growth vs Value Investing
Growth investing seeks companies expected to grow earnings quickly, often at a higher price. Value investing seeks companies trading below their estimated intrinsic worth, often cheaper on paper. Both styles have delivered strong returns over different long periods.
Two different bets
A growth investor is willing to pay a premium price today for a company expected to grow earnings substantially in the future, betting that the growth will eventually justify the price paid. A value investor looks for companies the market appears to be underpricing relative to their current fundamentals, betting that the price will eventually correct upward as the market recognises that gap.
Why leadership rotates between them
Growth tends to lead during periods of low interest rates and strong economic optimism, when investors are willing to pay up for future potential. Value tends to lead during periods of rising rates or economic uncertainty, when investors favour companies already profitable today over promises about tomorrow. Neither style dominates permanently, and long stretches of underperformance for either style are normal, not a sign that the style has stopped working.
A sensible default
Most long-term investors are better served holding a diversified mix that captures both styles rather than betting heavily on one, since correctly predicting which style will lead over the next several years is genuinely difficult and mistiming that bet is a common source of underperformance.
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