Value companies are trading at low prices. These low prices are usually the result of tough times at the company but occasionally just because the market's a weird place.
Often, the best growth investments are smaller companies.
The best value plays are usually large companies. Not always, but most of the time.
The PEs of growth companies tend to fluctuate hugely. When the growth slowed or the companies hit a rough patch, the shares of growth companies can fall by a large amount.
- Can you spot these companies in the early stages of their growth paths?
Large good companies were selling at bargain prices during the recent global financial crisis in 2008/2009. These companies are "safe" to buy during these periods when they are undervalued. They usually will rebound during recovery of the market. Some companies met some headwind or rough patch during their financial year and their share prices were sold down hugely, offering bargain prices for the savvy investors.
- Did you spot the values in these times in these stocks?
- Did you seize these opportunities or were you seized by fear of loss and the unknown?
The division between growth and value companies is not always clear-cut.
- Many can also be classified as stocks that have business growth selling at reasonable prices (GARP).
- Another phenomenon to note is that investors tend to invest into value companies when they also starting to show some growth in their business.
- Similarly, investors buy into growth companies at the point when they are starting to show some value. :-)
Therefore, growth and value investing are basically two sides of the same coin. They are joined at the hip, according to Buffett.
Above all else, why invest unless you see value in either?