In Warren Buffett’s 1992 letter, he wrote about value and growth investing. More importantly, it’s how he defined that is often ignored. Investors classify stocks as either value or growth. As per Buffett’s 1992 letter:
… most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross- dressing.
We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.
Regardless of what type of stock you invest in, there is always a component of growth.
The original net net strategy of Ben Graham assigns a value of zero to growth. It doesn’t mean growth is ignored. It’s just saying that the stock can’t be relied upon to have any growth.
On the flip side, there are stocks where people expect growth at an absurd level like 1000%. This is a case where the dial on “value” is turned off to zero.
Here’s Buffett’s take on it, from the same letter:
In addition, we think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labeled speculation (which is neither illegal, immoral nor – in our view – financially fattening).
By this very definition, every stock is a value + growth stock. One of the reasons why I look at every stock through a classic Quality, Value and Growth lens.
