Can you tell the difference between the two?
Value investing is the art of looking for "out of favour" companies with discounts in price-earning (PE) multiples. Looking for established companies with proven earning records but relatively "cheap" now.
Growth investing is the "science" of looking for fast earnings growth, probably relatively young companies with possibly cutting edge, new age products seeking to change market paradigm. Such companies are usually trading at high PEs. Why? Got not much earnings to show now.
So who am I? Can I say I am both a value investor and growth investor.
In a recent presentation by Mr Jimmy Pang, a senior portfolio manager at Alliance Bernstein recently, he said,
- Forecasts for exciting companies tend to be too exciting ie. optimistic.
- On the other hand, investors are too pessimistic with value companies.
His themes were that
- "reversion to the mean is good for value stocks but bad for growth stocks" under the current investment climate.
- "there is very little value to wring out of value companies but there is a lot of value to be found in growth companies"
What is the reward of correctly identifying the "right" growth company to invest in?
Well, if you had invested $10,000 in Cosco five years ago, you would be a millionaire today!!!! (worth $1.1m today)
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