****Buffett (1992): Do not categorise stocks into growth and value types, the two approaches are joined at the hip
====
Here is a summary of Warren Buffett's key points from his 1992 shareholder letter:
Core Argument: The traditional division between "value" and "growth" investing is a false and unhelpful dichotomy. True investing is always about seeking value.
Key Takeaways:
Growth and Value Are Inseparable: Growth is a critical component in calculating a business's intrinsic value. Its impact can be positive, negative, or negligible, but it is always a variable in the valuation equation.
"Value Investing" is Redundant: All legitimate investing is the pursuit of value. Paying more for a stock than its calculated intrinsic value is speculation, not investing.
Surface Metrics Are Misleading: Traditional "value" indicators (low P/E, low P/B, high yield) or "growth" indicators (high P/E, high P/B) are not definitive. A stock with a high P/E can still be a "value" purchase if its intrinsic value is even higher.
Growth Alone Does Not Create Value: Growth only benefits investors when the business can generate returns on its incremental capital that exceed its cost of capital. Profitable growth that consumes vast amounts of capital can destroy shareholder value (e.g., the airline industry).
The Crucial Metric is Return on Capital: The primary determinant of value is not profit growth itself, but the amount of capital required to achieve that growth. The lower the capital consumed for a given level of growth, the higher the intrinsic value.
Practical Investor Lesson: Investors should avoid companies and sectors where fast profit growth is accompanied by low returns on capital employed (below the cost of capital). The focus must be on the relationship between growth, capital required, and the resulting returns.
