The difference between value and growth investing


January 10, 2019 9:38 am

Warren Buffet, sometimes known as the sage of Omaha, once claimed he preferred to “to buy a wonderful company at a fair price”. What he meant by this is when it comes to picking investments, he looks for quality businesses that, for some reason or another, are undervalued by the rest of the market.

Buffet learnt his trade as a student and later an employee of Benjamin Graham, widely considered the godfather of this style of ‘value investing’ and author of one of the most authoritative books on security analysis.

Value investors take a bottom-up approach to evaluating an investment opportunity. They look at a company’s fundamentals, such as its revenue streams or balance sheet, and use metrics like the price-earnings (PE) ratio or price-to-book (PB) ratio to figure out if its shares are available at a discount. Once value investors identify a company that appears undervalued, they buy and hold, hoping the rest of the market will take notice and the share price will rise.

Buffet has successfully applied this approach throughout his 60-year career and the share price of Berkshire Hathaway, the publicly-listed vehicle through which he invests, has grown steadily but surely since he took control in 1965.

Going for growth

Some investors prefer to target companies that are growing fast and therefore offer the prospect of considerable returns. These types of companies tend to have developed new and innovative products and services which catch the imagination of consumers.

The tech sector has traditionally provided these ‘growth investors’ with a steady stream of opportunities. Jeff Bezos only launched Amazon in 1994, but its valuation surpassed one trillion dollars at the start of September 2018. Apple was the first company to reach a trillion-dollar valuation earlier in 2018, although it was founded 18 years before Amazon. More recently, the share prices of Facebook, Alphabet (parent of Google) and Netflix have raced ahead since listing on the stock exchange.

Of course, not all growth shares shoot the lights out. Just ask investors in social media platforms Twitter and Snapchat.

A blend of styles

Some fund managers identify as either value or growth investors. Within the Omnis range of funds, Cédric de Fonclare of Jupiter Asset Management, who runs the Omnis European Equity Fund, leans slightly in favour of growth. Similarly, Andrew Rose and Masaki Taketsume of Schroders, co-managers of our recently launched Omnis Japanese Equity Fund, have a minor bias towards value.

Each of the Omnis fund managers has developed their own approach to researching investment opportunities and building portfolios based on years of experience.

By offering a range of funds with a blend of styles, we believe that we can provide you with great potential for returns across all market conditions. Please get in touch to find out more.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.