InvestorQ : Are there some basic rules to follow in growth versus value investing?
Archita Jajjoo made post

Are there some basic rules to follow in growth versus value investing?

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Abhisha Yadav answered.
3 years ago
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In the debate over growth versus value, one should not miss out on some critical points…
While buying growth stocks one needs to be cautious of disruptive technologies. Globally, a very famous example is who Nokia got disrupted by smartphones manufactured by Apple and Samsung. Many businesses like electronic hardware, hotels, and automobiles are all being impacted by disruptive technologies. For example, hotels got badly disrupted by e-commerce platforms like Airbnb globally and OYO Rooms in India. If you are buying these stocks from a growth investing perspective, you need to be cautious of how disruptive technologies could impact future growth and ROE of your companies.
  • If you are focused on value stocks, then you need to be cautious of the Value Trap. There is a saying in the market that cheap crap is crap anyways! Many companies with low P/Es and low P/BVs tend to sustain at low valuations for long due to larger fundamental problems that may not be apparent. Investors, therefore, need to be doubly careful while buying value stocks at bargain prices. When a company consistently quotes at very low P/E Ratios, there is possibly about the stock that you are missing out.
  • Timing matters a lot! Here we are referring to the market conditions when you are taking the investment decisions. Typically, when markets are quoting at the lower end of the valuation range, value investing will tend to work better. That is because the downside risks of these value stocks become almost negligible.
  • Lastly, growth stocks tend to outperform when the macroeconomic cycle and corporate performance are maintaining a steady positive clip. Then markets attach more importance to buying growth rather than buying value. When the markets are flat that is when value investing actually comes into its own and creates value for the investor.
The value and growth approaches are more often than not, complementary rather than being competitive. If implemented at the right time with the right checks and balances, both these approaches work to perfection!
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