Value investing vs growth investing

 

Here’s a detailed comparison of Value Investing vs Growth Investing, two of the most prominent investment strategies used by professionals and individual investors alike:

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🏛️ 1. Value Investing

📌 Definition:

Buying undervalued stocks that are trading for less than their intrinsic value based on fundamentals like earnings, dividends, and book value.

🔍 Key Characteristics:

Feature	Description
🔹 Price	Low relative to fundamentals (P/E, P/B, etc.)
🔹 Risk	Typically lower (margin of safety)
🔹 Volatility	Lower; more stable earnings
🔹 Focus	Intrinsic value vs market price
🔹 Common Metrics	P/E ratio, P/B ratio, dividend yield

💡 Example:

Companies like Coca-Cola, Johnson & Johnson, or ITC that have consistent cash flows, strong moats, but may be temporarily out of favor.

🧠 Famous Proponents:

• Benjamin Graham (father of value investing)

• Warren Buffett

• Seth Klarman

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🚀 2. Growth Investing

📌 Definition:

Investing in companies with high earnings growth potential, even if they appear expensive relative to current earnings.

🔍 Key Characteristics:

Feature	Description
🔸 Price	High relative to current earnings (high P/E)
🔸 Risk	Higher (depends on future growth expectations)
🔸 Volatility	More volatile
🔸 Focus	Revenue/earnings growth, innovation
🔸 Common Metrics	EPS growth rate, revenue CAGR, PEG ratio

💡 Example:

Companies like Tesla, Amazon, Infosys during growth phases, or Zomato and Nykaa in emerging markets.

🧠 Famous Proponents:

• Philip Fisher

• Peter Lynch

• Cathie Wood

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⚖️ Key Differences at a Glance

Feature	Value Investing	Growth Investing
Stock Price	Undervalued	Overvalued (relative to current earnings)
Risk Level	Lower	Higher
Dividend Yield	Often pays dividends	Often reinvests earnings
Investment Horizon	Medium to long-term	Long-term
Market Conditions	Favored in bear or recovery markets	Favored in bull markets
Valuation Metrics	Low P/E, P/B, high dividend yield	High EPS growth, high PEG
Capital Appreciation	Steady	Potentially exponential

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🧪 Hybrid Strategy: GARP (Growth at a Reasonable Price)

• Combines both approaches.

• Focuses on companies with solid growth but not overpriced.

• Uses PEG ratio:

  $$\text{PEG} = \frac{\text{P/E Ratio}}{\text{EPS Growth Rate}}$$

  A PEG < 1 is considered favorable.

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🛠️ Tools to Identify Value or Growth Stocks

Tool	Value Focused	Growth Focused
Screener.in	P/E, P/B, ROE filters	EPS, revenue CAGR
Morningstar	Valuation metrics	Growth ratings
Yahoo Finance	Dividend & valuation	Analyst growth estimates
Tickertape	Intrinsic value calc	PEG, forward P/E

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✅ Which Should You Choose?

If You Prefer...	Go With...
Steady income, less risk	Value investing
Future growth, innovation	Growth investing
Balanced, disciplined returns	GARP strategy
More active involvement, research	Either, depending on interest

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👥 Famous Quotes

• Warren Buffett: "Price is what you pay. Value is what you get."

• Peter Lynch: "The person that turns over the most rocks wins the game."