As I become more experienced in the industry, the lines between growth and value investing become more blurred. My current thinking is that whether you employ a “growth” or “value” strategy, we are all technically value investors at the core. We hope to identify investments where there is higher return opportunity than the risk present. Attractive investments that align with this framework have not realized their full intrinsic value but investors rely on a catalyst path for the stock price to converge to its intrinsic value. This seems like the concept of value investing in a nutshell. It seems like the reason behind the investment thesis (underappreciated growth, unpredicted margin expansion, lighter than expected revenue declines, overreaction, etc) doesn’t really matter since it’s a company specific issue and typically doesn’t apply to a broader group of stocks. What do I have wrong?
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You don't have anything wrong. "Value", "growth", etc are 1) simple heuristics and 2) basic categories into which we can group products that can be sold to people. There are fine reasons to differentiate between low p/e low p/b etc and high growth high p/e etc stocks, but their labels are misnomers based on tradition.
Yes, and if that's your definition of "value" then you are correct -- we are all "value" investors.
How you go about finding those value names is another story.
Some people identify as different types of investors. Don’t assume.
Value investors use Ben / Graham pronouns
It doesn’t matter your going to vastly underperform regardless
Yeah conceptually every investor is a value investor to a certain extent. But what separates the so called “traditional value” investors from the “traditional growth” investors is their risk appetites on measures of different types/aspects of risk. This is covered to a certain extent by factor investing literature.
I think you're right in that as you become more tenured the lines blur between value and growth in the traditional sense. Might be because everyone think they're buying value regardless of the traditional perception of what value investing is. No one is knowingly thinking they're overpaying for PV of FCF.
If I was to speculate I'd say:
1. The distinction in what parts of the DCF timeline you buy may create a distinction of value vs growth, with value focused on near-term EPS/FCF streams and "the P" reverting back to mean. Whereas in growth oriented investing you think the P is good enough and the EPS/FCF will enable the stock to grow in to it's valuation at an attractive clip. Both are buying value, just at different parts of the FCF curve.
2. Some might argue that the most underappreciated / mispriced growth is high quality, high growth, high multiple companies as opposed to stable / deaccel growth and high earnings / divi yield stocks. There was a paper outlining that high quality and high multiple stocks have lower standard deviations than low-mid tier companies over the long-term, as the working assumptions is that industry leaders (high multiple stocks) gain market share in recessionary times even if the delta to the market average multiple widens and it technically screens as expensive.
3. Notable investors of the past; Graham, Dodd, Buffett (who we often associate with value investing) made their names in a time where the proxy for value creation could be measured through the balance sheet (e.g. net net investing). But these statements have little meaning for the new economy / digital businesses where the shareholder value is created through the "intangibles" on the balance sheet, e.g. data, software or human capital. So on traditional balance sheet and earnings metrics high growth companies deriving value through intangible assets screen as expensive, so one needs "growth adjust" the valuation (PEG, Rev/EBITDA-to-growth multiples) - but it's still buying "value".
Coatue on tech investing
HBR: Why Financial Statements Don’t Work for Digital Companies
https://hbr.org/2018/02/why-financial-statements-dont-work-for-digital-…
Value doesn’t mean value. But yeah you’re right. If you use the definition of my second use of value.
I think value implies that you are making a bet where you think the stock is underpriced relative to its intrinsic value. However if your strategy revolves around magnifying that discrepancy rather than shrinking it (for example Soros betting in the direction of bubbles rather than against them) then that is not value. Although some would consider Soros type strategies to be “speculation” instead of investing…
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