A comeback for value investing

Though growth stocks have made the most of the bull market momentum, value stocks did much better in containing falls during the inevitable reversal. The result: a better long-term record.

http://www.thehindubusinessline.com/iw/2009/04/26/stories/2009042650500700.htm

Value Investing versus Growth Investing: Know The Difference

Typically when you read about investing, you would come across the terms value investing and growth investing. Both mean different things, and what investment style you would use depends on the kind of person you are. I can bet, that most investors do not really understand the difference between value investing and growth investing. If you are one of them, this would be a good time to get it right.

Value Investing
Value investing is the strategy of selecting stocks that trade for less than what they are really worth. Value investors keep looking for stocks that are under priced but have excellent financial record. This information can be obtained by looking at the financial statements (balance sheet, income statement). Value investors typically take into consideration attributes like low price to earnings ratio (P/E), price to book ratio (P/B), price to sales ratio (P/S) and high dividend yields. In short, value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

Value investors beg to differ. They generally do not agree with the fact that current market price of a stock reflects all the information there is to know about the company. Value investors tend to put more weight on their judgments about the extent to which they think a stock is mispriced in the stock market. They will buy the stock, if they believe it is under priced and sell it, if they believe it is over priced. The art most value investors try to master is buying stocks of good companies going through a rough patch, because that is the time when the stock price will be under priced. Value investors would then ride out the rough patch and reap in their gains during better times, eventually selling them when their fair value is reached.

Growth Investing
Growth investing works exactly opposite to that of value investing. Growth investors focus on stocks with faster growth potential.

Growth investing is the strategy of selecting stocks that show signs of faster growth. Growth investors keep looking for stocks that will grow faster compared to its industry or the overall market. Growth investors focus on stocks trading at high P/E, P/B and P/S ratio and do not care much about dividend yields. In short, growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).

Value versus Growth
Value investors generally plan to hold the stock for a longer duration, since they believe over a period the stock will come out with flying colors. Value investors are generally patient investors. On the other hand, growth investors believe that soon the company will grow rapidly and so will its stock price. Growth investors are generally in for short time frame compared to value investors. In general, value stocks tend to hold up better during stock market downturns.

So are you a Value Investor or a Growth Investor ??

http://rantaboutit.blogspot.com/2007/06/value-investing-versus-growth-investing.html

The debate between growth and value investing

Top value stocks in Indian markets


Submitted by TheIndiaStreet on June 12, 2007 - 6:44am.


By Sundaramurthy Vadivelu
The India Street

Introduction:

Before investing in any particular stock, one needs to know about the company, its business, key areas of strength, possible risks, top management, financial performance like book value, earnings per share, dividend yield etc. This is called ‘fundamental analysis’ and focuses only on the company fundamentals. It simply ignores the stock market conditions during that period. This is in complete contrast with technical analysis, which discounts all the factors while the market price is determined. In other words, the technical analyst believes that the company performance, business forecast etc. are always discounted by the market participants while trading the stock.

It is ultimately a personal choice. For an investor who can’t sit in front of a computer for hours to analyze the market and find the right stock to invest, be it short term or long term, fundamental analysis could be useful. Several financial newspapers publish the important data such as book value, earnings per share etc. along with stock quotes. This can be used for fundamental analysis.

Earnings of a company are very important to an investor. Once the company’s operations are stabilized and starts earning, it is reported to the stock exchanges. The audited results may also be published in popular newspapers. Good earnings are an indication of company performance and capital appreciation.

Earnings per share is a term that is used to reflect the earnings of the company for each outstanding share. ‘Outstanding’ means the shares that can be traded in the stock market anytime. This is arrived after deducting promotors’ shareholding, locked in shares, etc. from total number of shares. EPS is calculating by adding the total earnings for the previous 4 quarters and then dividing it by the total number of outstanding shares.

P/E ratio is another term that can tell the investor how much the market is willing to pay for the company’s earnings. It is simply the market price divided by the EPS.

The book value of a company is the company's net worth, as measured by its total assets minus its total liabilities. This indicates how much the company would have left over in assets if it went out of business immediately. As with EPS, book value per share is arrived at after dividing the book value as per last balance sheet by the total number of outstanding shares.

Price to book value (PBV) is the ratio between stock price and book value per share.

These two parameters can help an investor to identify “growth” and “value” stocks in the market.

Growth stocks usually have high P/E and PBV ratios, which means that these stocks are relatively high-priced in comparison with the companies’ net asset values. In contrast, value stocks have relatively low P/E and PBV ratios.

Most growth investors are willing to pay a fairly high price for a stock whose earnings they expect to go up higher. They aren't completely insensitive to price, but the question of whether a stock is cheap or expensive isn't the real question for them.

Value investors view cheapness as a major factor. They focus on stocks that are cheap. Just as growth investors are not totally insensitive to price, they are not completely indifferent to earnings progress. However, they are willing to sacrifice some earnings growth for the sake of cheapness.

The following tables give us “growth” and “value” stocks in Indian stock market.

Table 1: Companies with high P/E ratio

Some of these companies, such as Aban Offshore, Educomp Solutions, Glenmark Pharma and UTV Software have gone up by more than 300% in the last 1 year.

Table 2: Companies with high PBV ratio

We can once again see Aban Offshore, GMR Infrastructure, Educomp Solutions and Glenmark pharma in this list.

Table 3 : Companies with low P/E ratio:

While choosing a stock the investor needs to be aware of the current business conditions in the industry it belongs to.

Table 4: Companies with low PBV ratio:

Conclusion: The debate between growth and value investing has been going on for years. Both styles have their positives and negatives and need different requirements on investment research.

A truly diversified portfolio will have both growth and value stocks. In value investing, correct stock valuation as well as the right time of entry is very critical whereas in growth investing, it is essential to identify businesses that face little or no threat of erosion so that earnings growth of those companies is not affected.


http://www.theindiastreet.com/2007/06/top-value-stocks-in-indian-markets.html

Buffett Investing = Value + Growth

Buffett-style Investing

Value Investing and Growth Investing are joined at the hip

The main message from value investing strategies is to invest with low downside risk.  

If a stock satisfies this criterion, you should then consider its growth in earnings to implement a value-plus-growth strategy (Buffett-style investing).

The focus in value investing is on the past, the focus in growth investing is on the future, and the focus in Buffett-style investing is on both the past and the future.

You should also pay special attention to management quality, because high-quality management is the source of growth in Buffett-style investing.

To implement the above strategy, you should compute the stock's intrinsic value and compare it with the stock's price.

As a general rule of thumb, if the price is about half the intrinsic value, it is worth investing in that stock.



The Renaissance Investor

There is more to Buffett than simply value and growth investing.

Buffett engages in

• arbitrage investing, 
• investing in silver futures, 
• betting on oil, 
• forward trading in foreign currencies, 
• managing a large number of wholly owned subsidiaries, and 
• writing derivative contracts.

He frequently narrates investment-relevant stories from other fields such as

• psychology, 
• sports, 
• country music, and
• life in general.

Given his broad knowledge and his deep understanding of investment-related topics, it is preferable to call him a renaissance investor rather than attempting to pin him down under more limiting monikers.

Value Growth Investing

Publiished by FT Prentice Hall in 2001 , 1st edition

Description of Value Growth Investing
"Drawing on the principles of some of the most successful investors of the last century, this book is both a valuable guide to the ideas of these gurus and a fascinating elucidation of the author's own investment philosophy of 'valuegrowth'." Romesh Vaitilingam, author of The Financial Times Guide to Using the Financial Pages "Glen Arnold explores and endorses all the investment concepts that I try to promote every week in the Investors Chronicle and his portraits of the great investors are right on the mark. Despite being a professor of finance, he is eminently readable." Alistair Blair, No Free Lunch column, Investors Chronicle "Market commentators and investment managers who glibly refer to growth' and value' styles as contrasting approaches to investment are displaying their ignorance, not their sophistication." Warren Buffett, 2001 Valuegrowth Investing answers the key question for investors: "What are the crucial elements leading to the successful analysis of shares?" To be a successful investor you have to be a good evaluator of businesses.
There are too many so-called investors who occupy their time analysing the stock market, identifying trends and forecasting.Valuegrowth investors understand the companies in which they buy stocks as living businesses. This book draws on the rigorous investment techniques developed by the great investors of the last 100 years, such as Peter Lynch, Benjamin Graham and Warren Buffett. These ideas are combined with modern finance frameworks and with recent developments in the field of business strategy analysis, to create a new way of valuing shares. All investors are searching for the Holy Grail of a set of sound and profitable investment principles to guide them in share selections. Valuegrowth Investing shows that the Grail has been found.Valuegrowth Investing: *draws on investment principles discovered by world-renowned investors such as Peter Lynch and Warren Buffett *combines these principles with insights provided by recent developments in the field of business strategy to provide a coherent investment philosophy for tomorrow's investment strategies *describes what the ordinary investor should focus on and then offers evaluation techniques to identify underpriced shares *provides tools for analysing key investment factors *shows that successful investing does not require great intellect, it requires great principles.


Contents of Value Growth Investing
Part One: Investment Philosophies

1. Peter Lynch's niche investing
2. John Neff's sophisticated low price-earning ratio investing
3. Benjamin Graham: The father of modern security analysis
4. Benjamin Graham's three forms of value investing
5. Philip Fisher's bonanza investing
6. Warren Buffett and Charles Munger's business perspective investing - Part 1
7. Warren Buffett's and Charles Munger's business perspective investing - Part 2

Part Two: The Valuegrowth Method

8. The Valuegrowth Investor
9. The analysis of industries
10. Competitive Resource Analysis