The truth about growth investing - it works...

Tuesday, Jul 17 2012 by
The truth about growth investing  it works

Growth investing and growth investors are dirty words to many value investors.  A focus on growth is often called the Greater Fool Theory, and study after study shows that growth investing performs badly when compared to value investing.

As a value investor, it’s easy to mock growth investors with reams of data and an air of self-satisfied superiority.  There is a slight problem though.  The shocking truth about growth investors is that they’re right.  Growth investing is a fantastic way to make money in the stock market, as long as you do it right.

Warren Buffett is a growth investor

Buffett is usually considered a value investor, and that’s because he is one.  But he’s also a growth investor, and with the help of Charlie Munger they pioneered a hybrid approach where they combined the best of both worlds – long-term growth companies bought at value investment prices.

It was Buffett’s focus on outstanding businesses which could grow both quickly and consistently that really took him to the top of the world’s richest people list.

The FTSE 100 as a long-term growth investment

As a UK investor my focus is always on beating the FTSE 100 in the long-run.  The FTSE 100 beats some 80% or so of private and professional investors alike, and so if I can beat the FTSE then I know I’m doing much better than the pros, which is always nice.

I also know that my time and efforts are not wasted, because any investor can invest in the FTSE at almost no cost in terms of either time or money.  If you are not beating the FTSE 100 then you are effectively wasting your time.

As a growth investment, the FTSE 100 typically grows both earnings and dividends faster than inflation, and it does so relatively consistently over the years.  That growth ultimately drives the index level higher, regardless of how pessimistic the market may be.

In order to beat the market, we need to turn our portfolios into supercharged versions of the index, with superior growth, superior yields and superior valuations.

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This article is for information and discussion purposes only and nothing in it should be construed as a recommendation to invest or otherwise. The value of an investment may fall and an investor may lose all their money. Any investments referred to in this article may not be suitable for all investors.  Investors should always seek advice from a qualified investment adviser.

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1 Comment on this Article show/hide all

ValuableGrowth 17th Jul '12 1 of 1

I can't argue with that, it's the basis of the ValuableGrowth portfolio approach. Growth companies that offer value, perfect.

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About UK Value Investor

UK Value Investor

My name is John Kingham and I'm the editor of UK Value Investor, an investment newsletter for defensive and income-focused value investors. That means I write about buying large, successful companies with long track records of profitable dividend growth, and buying their shares at low valuations and with high yields. My website includes a unique stock screen and a model portfolio which is managed using a checklist-based investment strategy.  The goal of the strategy is to produce a portfolio which combines a high yield and good capital growth with low risk, and which is easy to maintain in just a few hours each month. more »


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