Growth Investing vs Value Investing
Growth investing buys companies expanding quickly and pays a high multiple for that expansion. Value investing buys companies priced low relative to earnings or assets. Both are forecasts about the future and they differ in what has to go right.
The two oldest labels in equity investing. One buys companies expanding fast and accepts a high price for that; the other buys companies priced low and waits. Both are forecasts, and the argument between them is usually about temperament rather than arithmetic.
What each one is
Growth investing buys expansion. Revenue and earnings rising quickly, priced at a multiple that already assumes the expansion continues. Growth investing covers it.
Value investing buys a low price relative to something. Earnings, book value or cash flow, on the argument that the market has marked the company down further than the business justifies. Value investing covers that side.
The labels describe the price paid, not the company’s quality. A good business can be a value holding and a poor one can be a growth holding — the category is about the multiple.
Where they differ
What has to go right. Growth needs the expansion to continue at roughly the assumed rate. Value needs the market to change its mind, or the business to improve.
What it costs when it does not. A growth company that merely slows — still growing, just less — is usually repriced sharply, because the multiple was paid for the rate. A value company that stays cheap simply does nothing, for years.
Where the safety comes from. Value’s is the price: paying less than something is worth leaves room to be somewhat wrong. Growth has no equivalent cushion — the price already assumes success.
How the failure feels. A growth failure is sharp and visible. A value failure is slow and indistinguishable from patience, which is why it is the harder one to recognize.
Where they agree
Both are forecasts. A low multiple is a claim that the market is wrong; a high one is a claim that the growth continues. Neither is a fact about the present.
Both resolve over years. In the S&P 500 since 1950, 93% of trading days closed below the previous record and the longest wait for a new record was 7.5 years, from 1973 to 1980 — being early looks identical to being wrong for a long time either way.
Both need a written statement of what has to be true. Without one, a position can be held indefinitely on the grounds that it has not worked yet.
And both are undone by costs. On this site’s arithmetic a 75-basis-point annual drag removes 20.2% of a thirty-year pot, which exceeds the difference between the two approaches in most realistic cases.
Which one to use: Growth Investing or Value Investing?
Run value when you can hold through years of being early. The margin of safety in the price is real, and collecting it requires sitting through a stretch where the position does nothing and looks mistaken.
Run growth when you can tolerate sharp repricing. The companies expand faster and the falls are faster too, and a holder who sells during the first one has bought the volatility without the return.
Run both if you cannot say which temperament is yours. Holding some of each hedges the single variable — which regime the next decade favors — that neither approach can predict.
And in either case, write down what would prove you wrong. That sentence is what separates a value position from a position you are stuck in, and a growth position from a story.
Why the labels mislead
Neither describes quality. A cheap company can be cheap because it is failing; an expensive one can be expensive because it is excellent. The multiple says what you are paying, not what you are getting.
And the categories overlap constantly. A company can screen as both, or move between them without changing at all, simply because its price moved.
The original data
Of the 24,971 unique videos collected for this site’s search study, 5 name both in the title, at a median of 8,185 views. Separately, value investing appears in 78 titles at a median of 13,135 and growth investing in 19 at 573. No video is counted twice, however many searches surfaced it.
8,185 for titles naming both against 13,135 and 573 for the two approaches on their own. Value investing draws more than twenty times the audience per video of growth investing, and titles naming both sit in between.
The question: Value holding, four years of nothing. Wrong?
The answer is that your written statement already answered it. If what you said had to be true is still true, four flat years is the approach working as described — and if you never wrote one, there is no way to tell patience from a mistake.
How the videos on each are made
As for format, 42% of the growth investing titles are written as a lesson (a how-to, a tutorial, an explainer), compared with 17% for value investing. So neither is mainly taught, but growth investing tilts further toward teaching than value investing. Median running time is 10.1 minutes for growth investing videos and 32.5 for value investing videos, so value investing runs about 22.4 minutes longer. 89% of growth investing uploads have fewer than 50,000 views; for value investing it is 72%. Both appear together in 5 titles (median 8,185 views).
When it fails
The failure is switching approach after a bad run, and it guarantees arriving late to both. Value underperforms for a stretch, so the money moves to growth — usually after growth has already run. Growth then reprices, so it moves back. Each switch is made immediately after the current approach has demonstrated its weakness, which is the point at which the other has already delivered most of its gain.
The second failure is no written invalidation. A cheap holding can be held forever.
A third is treating value as the safe one. Cheap can get cheaper for years.
A fourth is treating growth as quality. The multiple describes the price.
A fifth is judging either over a few years. Both regimes last longer than that.
And a sixth is ignoring costs while debating the labels. The drag exceeds the difference.
Related
Growth investing covers the expansion side. Value investing covers the discount side. And valuation is the arithmetic both approaches are arguing about.
What both have in common is that they are bets on the future dressed up as different kinds of analysis. Growth bets the expansion continues. Value bets the market has mispriced something. Neither is safer — they simply fail in ways that feel different.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.