Return Of The Bargain Hunter

Growth has been the buzzword for half a decade, but value investing is set to reassert itself

- David Thornton

Value investing is all about finding bargains. The market prices stocks based on supply and demand, but this price may sometimes be below what investment experts assess to be a “fair” price.

As the father of value investing, Benjamin Graham, has said: “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

The idea behind value investing is that the stock is bought on the cheap, and eventually the market will realize it is actually worth more than it is trading for and then recalibrate the price upwards, thereby returning a profit for the investor.

Growth investing, on the other hand, is all about finding stocks that will grow faster than the rest of the market.

If Graham is the pioneer of value investing, the mantle in the growth domain certainly goes to Philip Fisher, who followed the maxim that “[the] greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than industry as a whole”.

Some investors view growth and value investment styles as bedfellows.

The legendary Warren Buffett has even suggested that growth and value investing are joined at the hip: “Growth is always a component in the calculation of value.”

Michael Goldberg, managing director, and portfolio manager at Collins St Asset Management, sees it this way: “Between Ben Graham and Philip Fisher, you’ll find all growth investors and all value investors. Both are looking to buy a dollar’s worth of a business for 50 cents.”