Which is considered most successful if we compare value versus growth investing?
Clearly, there is no correct answer to this question, despite the frequency with which it is asked. It is can be best answered with the observation that the best strategy depends on the investor.
Without doubt, value investing is a very successful method and the results of some of investment's legends proves the point. However, there are also some very skilled growth investors. The record of Peter Lynch was stunning until his retirement.
Value investing requires incredible amounts of patience and deep pockets. It is a strategy for the very long term investor. If personal finances suddenly required cash and forced the sale of a holding - after waiting months or years to invest - it would be very frustrating and potentially very expensive. Not good.
It also must be noted that being a value investor requires significant mental strength and confidence. One of the hallmarks of a successful value investor is that when times are rough and markets are depressed, they are out picking up bargains. This means that when confidence is low generally, a value investor needs confidence in the conviction to purchase.
In contrast, growth investing has many more opportunities to buy. Since the growth period of the economic cycle generally lasts longer than the recession and contraction phases, there should be more potential purchases. This means that a growth investor needs less patience and can, in theory, find purchases most of the time.
This too can require a very long term perspective, especially if younger and smaller companies are chosen. These high growth investments can often prove to be more volatile in price and less liquid (harder to sell in the market) and these factors clearly increase the risks being taken by an investor.
An investor buying at a growth stock will usually be paying a much higher purchase price (in terms of P/E ratio) which will seem to be poor value to a value investor. These mindsets are opposite sides of the same investment coin.
As predicted, comparing value versus growth investing, does not offer a clear cut choice of which style is most successful. The mindset of the investor is vital to solve this conundrum and only the individual and his psyche can come to a clear and definite choice.
This means that all new investors just starting, ideally need to read quite deeply about both styles so that a clear choice can be made about strategic preference.
To read and learn more, please visit the following pages:
What Is Value Investing?
What Are The Value Investing Basics?
Problems With The Value Investing Approach
The Value Investing Rules Of Ben Graham
The Good And Bad Of A Value Investing Strategy
What Is Asset Stripping?
Value Investing With Warren Buffett