“Price is what you pay for, value is what you get”. This well-known comment from the legendary investor Warren Buffet captures the essence of the value investing philosophy and provides the key to how Buffet amassed his wealth. Warren buffet being the icon of “value investors” has built a stupendous amount of wealth by practising disciplined value investing over years. Value investors believe that you are more likely to find undervaluation of assets in place and tend to invest in mature firms with substantial existing assets, albeit underperforming ones.
Value is very difficult to find in inflated markets and can only be seen when the markets have been sharply corrected. Bull market conditions make value investing look pointless. The value investing strategy will prepare investors for market corrections because undervalued stocks do not experience them. Value investment has the potential to perform better over the long run. A lengthier time might easily extend to intervals of more than five years.
However, if Warren Buffet is the icon for value investors, Peter Lynch occupies a similar position for growth investors. “Whenever you invest in any company, you are looking for its market capitalisation to rise. This can’t happen unless buyers are paying higher prices for the shares, making your investment more valuable.” This thesis by Peter Lynch completely stands on the opposite side of what value investing believes in. Growth investors are animated with the belief that growth too can be under-priced in some companies, and that the payoff to seeking out these bargains in growth is sufficient to justify the costs.
This story is from the December 05, 2022 edition of Dalal Street Investment Journal.
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This story is from the December 05, 2022 edition of Dalal Street Investment Journal.
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