Value and Growth are two buzzwords, but what do they mean? Well, since we. the people who give meaning to the words, by itself, neither Value and Growth mean anything beyond what each one interprets.
If we talk about words that describe simpler objects, the meaning is clear: most of us will agree on the interpretation of the word "table", since it has a more or less clear representation in the real world for everyone.
Although, as in everything, there may be exceptions, since some may interpret that a certain object is a table (perhaps a table of unimaginable design in a bizarre way) and others not, since their mental concept of "table" does not include an object. that does not correspond to a table and four legs. In any case, we will all agree most of the time with the concept of "table".
The same is not the case when we talk about Value companies and Growth companies, since each one defines it a little as he wants.
Despite this inherent subjectivity in the term, it is quite useful for investors to differentiate these two types of companies. In our opinion, one of the differentiating elements between these two types of investments are the terms in which the investor receives the "cash flows":
If we talk about words that describe simpler objects, the meaning is clear: most of us will agree on the interpretation of the word "table", since it has a more or less clear representation in the real world for everyone.
Although, as in everything, there may be exceptions, since some may interpret that a certain object is a table (perhaps a table of unimaginable design in a bizarre way) and others not, since their mental concept of "table" does not include an object. that does not correspond to a table and four legs. In any case, we will all agree most of the time with the concept of "table".
The same is not the case when we talk about Value companies and Growth companies, since each one defines it a little as he wants.
Despite this inherent subjectivity in the term, it is quite useful for investors to differentiate these two types of companies. In our opinion, one of the differentiating elements between these two types of investments are the terms in which the investor receives the "cash flows":
- Value: the cash flows that the company is currently generating are worth more than the market discounts right now. The company is cheap!
- Growth: the company will generate valuable cash flows in the future, and the market is not taking this into account. The company is cheap!
As can be seen, the common element is that in both cases, investors believe that their investment will be worth more in the future. This truism is sometimes overlooked, as we believe that only Value investors are buying a company whose intrinsic value is greater than the market values. This last definition is closely associated with the Value style, but it really is not like that.
It seems that lately the market is telling between these two investment styles, which are less correlated than in other periods:
This has made the debate between these two investment styles back in vogue. Also, the fact that Value is doing better in relative terms, something unusual in recent years, has fueled that dispute.
Will staunch Value Investing advocates outperform Growth investors this year? At the moment, it seems that they are tied.
