Value vs. Growth: How to Find the Right Investment Mindset for Wealth Building | Unifimoney (2024)

Investors have long separated themselves into one of two camps for how to build wealth: value investing or growth investing. Though these strategies overlap more than they differ, for a long time, investors have treated growth or value approaches as opponents in a boxing ring: feeling like they could only support one or the other.

But Howard Marks of Oaktree Capital Management, one of the most well-established value investors in the financial industry, had a realization during the 2020 roller coaster that value and growth strategies are not so divergent after all.

During that time, his son Andrew, a professional investor committed to the growth strategy, helped him understand the benefits of growth investing. If such a committed value investor as Howard Marks can rethink his approach to investing after a tumultuous year, then it’s worthwhile for all of us to understand the benefits and drawbacks of each of these investing styles so we can make the best investing decisions for ourselves.

How 2020 Changed Minds

In a recent memo for Oaktree Capital, Marks explained in detail what helped him to see his value investing philosophy in a new light. During the pandemic, Marks and his wife welcomed their son Andrew and his small family into their home for 10 months of 2020. Living in close proximity allowed Marks to see how Andrew made his investing decisions during one of the most turbulent market years in recent memory.

Marks, who comes at investing from a conservative viewpoint, realized that his insistence on several of the hallmarks of value investing meant losing out on important investments. He writes:

“Part of what makes up the value investor’s mindset is insistence on observable value in the here-and-now and an aversion to things that seem ephemeral or uncertain...value investors [tend] to be very skeptical of market exuberance, especially when concerning companies whose assets are intangible. Skepticism is important for any investor; it’s always essential to challenge assumptions, avoid herd mentality and think independently. Skepticism keeps investors safe and helps them avoid things that are ‘too good to be true.’
“But I also think skepticism can lead to knee-jerk dismissiveness. While it’s important not to lose your skepticism, it’s also very important in this new world to be curious, look deeply into things and seek to truly understand them from the bottom up, rather than dismissing them out of hand. I worry that value investing can lead to the rote application of formulas and that, in times of great change, applying formulas that are based on past experience and models of the prior world can lead to massive error.”

Value investors’ overreliance on formulas seems particularly concerning in 2021, as we are clearly in such a time of great change. Marks’ recognition of this potential pitfall of the strategy he has used for the entirety of his illustrious career is an excellent reminder of how savvy investors have to be open to new ideas, plans, patterns, and strategies.

So how does the average investor balance value vs. growth investing in their own portfolios? It starts with a thorough understanding of what these strategies are and why they are used.

What Is Value Investing?

At its heart, value investing is a conservative investment strategy that is all about seeking “hidden gems.” Value investors want to purchase shares in a robust company that is currently undervalued. To determine the company’s value, investors will look at a number of metrics, including:

  • Price-to-earnings ratio (p/e): This metric, which divides the market value per share by the earnings per share, gives you an idea of how many dollars you can expect to invest in a company in order to receive one dollar of that company’s earnings. A 15x p/e tells you that you will have to invest $15 for every $1 you can expect to earn at current pricing.
  • Discounted cash flow (DCF): This calculation helps investors estimate the value of a company by adjusting for the time value of money. Comparing the DCF to the present cost of the investment can help you decide whether or not to invest.
  • Dividend yields: Expressed as a percentage, the dividend yield is calculated by dividing the amount of money a company pays shareholders for owning a share of its stock by the current stock price.

In general, a value investor will focus on stocks with a low p/e ratio, a current stock price below the DCF, and high dividend yields. That’s because these metrics together tend to indicate that a stock is currently undervalued, and can be purchased at a discount.

Value investors are also interested in making purchases of solid companies in the wake of market downturns. You may have heard investors crowing about “stocks going on sale” after the bottom dropped out and most people were panicking about their portfolios back in March 2020. At that time, value investors were well aware that major players were going to bounce back from the market tumble, so they purchased stocks while they were temporarily undervalued.

Ultimately, value investors want to feel confident that they are making a good investment that is unlikely to drop in value in the future.

What Is Growth Investing?

If value investing starts in a place of caution, growth is all about taking calculated risks. Growth investors aren’t as interested as hedging their bets as their value-oriented counterparts, because they want to be able to take advantage of unlimited growth potential, rather than put guardrails around their potential losses.

Growth investors will also look at the metrics of their potential investments, but they have different criteria for their decisions. Generally, high p/e ratios don’t frighten growth investors, as they only choose stocks in companies they anticipate will go gangbusters, even if the price is already high. These investors are also less likely to use DCF to make their investment decisions since they are focusing on companies whose future cash flows are not necessarily predictable. And growth investors would prefer not to receive high dividends, as growing companies need all of their available cash to reinvest into the business to continue expanding.

While value investors want long-term, guaranteed returns on their investment, growth investors are more interested in jumping on investments with an upward trajectory, even if they are already priced relatively high.

Two Strategies, One Goal

While it may seem like value and growth investing are diametrically opposed—and that is certainly how these two strategies are often presented in financial media—they are both fundamentally trying to do the same thing: buy low and sell high.

Value investors have a more specific dollar amount in mind when buying low. They are more likely to be turned off by a high stock price on an investment that is trending upward. But growth investors recognize that “low” does not have an absolute value, and sometimes you have to buy stock at a relatively high price because it’s only going to get even higher as the company takes off.

The difference really comes down to what each investor feels confident about. Value investors trust in their formulas and their system, which seeks out and purchases undervalued stocks, rebalances them when their p/e ratio gets too high, and trusts that dividends will help increase their wealth. Growth investors are more likely to trust in the ability of individual companies to grow, as well as in their own ability to recognize when to sell.

Marks illustrated this beautifully at the end of his memo, where he related a conversation he and Andrew had about a company that was doing incredibly well--to the point where Marks would have sold it. Marks was trusting in his investment plan, while Andrew trusted his insight about an investment in a particular company. When Marks asked Andrew if he would rebalance his portfolio now that the company’s p/e ratio had gotten very high, his son responded:

“[That] would mean selling something I feel immense comfort with based on my bottoms-up assessment and moving into something I feel less good about or know less well (or cash). To me, it’s far better to own a small number of things about which I feel strongly. I’ll only have a few good insights over my lifetime, so I have to maximize the few I have.”

Making Your Own Investment Decisions

Even if you are not a professional investor like Howard and Andrew Marks, you can still re-create the level of confidence and certainty about your investments that they both enjoy. You can start by choosing ETFs that replicate the specific growth or value markers that are most important to you can help you build wealth and meet your financial goals. From there, maintaining the level of curiosity and willingness to re-evaluate your strategy that Marks recommends can help you stay nimble and able to change tactics when circ*mstances change.

Unifimoney users who want this kind of control over their portfolio can take advantage of commission-free trading right from the mobile platform. You have access to recommended securities hand-picked by Unifimoney’s advisory team, and you can create the value or growth driven portfolio that meets your specific financial goals.

If hands-on investing is not your cup of tea, you can also effortlessly invest with Unifimoney’s Tenjin AI Auto-Invest. With investments in appropriate ETFs, Unifimoney protects your investment from volatility while positioning you for maximum returns. The Smart Investing program through Unifimoney ensures that your money is invested in a diverse group of curated ETFs to give you the balance of growth and portfolio volatility needed to build your wealth. And any

Whether you want to be a hands-on investor or prefer to allow your money to grow without you lifting a finger, Unifimoney can help you get the value and growth your portfolio deserves.

As an expert in finance and investment strategies, my understanding of the concepts mentioned in the article reflects a comprehensive knowledge rooted in practical experience and theoretical expertise. I have a deep understanding of the dynamics between value investing and growth investing, which is crucial for making informed investment decisions.

The article discusses the evolution of Howard Marks' perspective, a seasoned investor with Oaktree Capital Management, during the turbulent year of 2020. This period led him to reconsider the traditional dichotomy between value and growth investing. Marks' experience underscores the importance of adaptability and open-mindedness in the face of market changes.

Now, let's break down the key concepts mentioned in the article:

1. Value Investing:

a. Price-to-Earnings Ratio (P/E):

  • Definition: It is a metric that divides the market value per share by the earnings per share.
  • Purpose: Helps investors understand how much they need to invest to earn one dollar of the company's earnings.

b. Discounted Cash Flow (DCF):

  • Definition: A calculation adjusting a company's value for the time value of money.
  • Purpose: Assists in determining whether the current stock price reflects the present value of future cash flows.

c. Dividend Yields:

  • Definition: Expressed as a percentage, it is the amount of money a company pays shareholders divided by the current stock price.
  • Purpose: Indicates the return shareholders receive through dividends relative to the stock price.

d. Market Downturns:

  • Strategy: Value investors seek to purchase undervalued stocks during market downturns, anticipating a rebound.

2. Growth Investing:

a. High P/E Ratios:

  • Approach: Growth investors are comfortable with high P/E ratios, focusing on companies with anticipated significant growth potential.

b. Discounted Cash Flow (DCF):

  • Perspective: Growth investors may not heavily rely on DCF, as they target companies with less predictable future cash flows.

c. Dividends:

  • Preference: Growth investors may prefer companies reinvesting their earnings for further expansion rather than distributing high dividends.

d. Upward Trajectory:

  • Goal: Growth investors aim to capitalize on stocks with upward trajectories, even if the initial price is relatively high.

3. Balancing Value and Growth:

  • Similar Goal: Both value and growth investors aim to "buy low and sell high."
  • Confidence and Trust: The difference lies in the level of confidence. Value investors trust in formulas and systems, while growth investors trust in the potential of individual companies and their ability to recognize optimal selling points.

4. Making Your Own Investment Decisions:

  • ETFs: Investors can use Exchange-Traded Funds (ETFs) to replicate specific growth or value markers.
  • Curiosity and Adaptability: Maintaining curiosity and a willingness to re-evaluate strategies is crucial for nimble decision-making, especially in changing circ*mstances.

5. Unifimoney's Approach:

  • Commission-Free Trading: Offers users the ability to trade ETFs with ease.
  • Tenjin AI Auto-Invest: A hands-off approach using AI to invest in appropriate ETFs, protecting against volatility while positioning for returns.

In conclusion, my expertise allows me to interpret and convey the nuances of value and growth investing, emphasizing the importance of adaptability and understanding individual comfort levels in investment strategies.

Value vs. Growth: How to Find the Right Investment Mindset for Wealth Building | Unifimoney (2024)


Value vs. Growth: How to Find the Right Investment Mindset for Wealth Building | Unifimoney? ›

While value investors want long-term, guaranteed returns on their investment, growth investors are more interested in jumping on investments with an upward trajectory, even if they are already priced relatively high.

When to invest in value vs growth? ›

For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion.

What is the difference between growth and value investment styles? ›

Where growth investing seeks out companies that are growing their revenue, profits or cash flow at a faster-than-average pace, value investing targets older companies priced below their intrinsic value. GARP investors also use intrinsic value to find growth companies that are attractively priced.

What is the difference between Russell 1000 growth and Russell 1000 value? ›

Companies are categorized by their size, sector, and financial valuation. The Russell 1000 Growth Index contains more expensive firms with higher expectations of financial progress, while the Russell 1000 Value Index includes companies trading at a discount due to mispricing or lower growth expectations.

Will growth or value outperform in 2024? ›

We expect lackluster global earnings growth with downside for equities from current levels.” Against this backdrop, value stocks have a strong chance of outperforming their growth counterparts in 2024.

Do value funds outperform growth funds? ›

Value premiums have often shown up quickly and in large magnitudes. For example, in years when value outperformed growth, the average premium was nearly 15%. On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927, as Exhibit 1 shows.

What are the 4 key things you need to build wealth? ›

Here are the 4 steps that you should follow to create wealth over time.
  • Step 1: Save Smartly. Saving is the first step towards wealth creation. ...
  • Step 2: Turn your monthly saving into investment through SIPs. ...
  • Step 3: Increase your investment periodically. ...
  • Step 4: Invest lumpsum when possible.

What are the 5 steps to building wealth? ›

Follow these five steps to get started on your generational wealth building journey:
  • Step 1: Pay off Debts. Think of debt as missed opportunity. ...
  • Step 2: Buy a House. ...
  • Step 3: Start Long-term Investing. ...
  • Step 4: Put an Estate Plan in Place. ...
  • Step 5: Share Your Financial Wisdom.
Mar 19, 2024

How do you set a billionaire mindset? ›

You can learn and apply them in your own life and career:
  1. Innovative Spirit. ...
  2. Purpose and Passion for Their Business. ...
  3. Servant Leadership. ...
  4. Personal Growth and a Passion for Learning. ...
  5. Independent Thinkers. ...
  6. Drive and Focus. ...
  7. Life Satisfaction and Health. ...
  8. Never Give Up.

How do you know if a fund is value or growth? ›

Typically, growth stocks boast higher-than-average valuations. You can check a stock's valuation by looking at price-to-earnings (P/E) and price-to-book value (P/B) ratios. Conversely, value funds look for companies with a lower P/E ratio when compared to their competitors.

Why value investing is better than growth? ›

Additionally, value funds don't emphasize growth above all, so even if the stock doesn't appreciate, investors typically benefit from dividend payments. Value stocks have more limited upside potential and, therefore, can be safer investments than growth stocks.

What do value investors look for? ›

Chomiak says that value investors typically look for stocks with PE ratios below 14, which is a bit less than the S&P 500 index's historical average PE ratio of 15.98. He says that positive free cash flow, another measure of profitability, is another good thing to look for when identifying value companies.

Does Russell 1000 outperform S&P 500? ›

However, while both the Russell 1000 Growth and S&P 500 Growth performance reflected large cap growth's banner year, the return difference between the two indexes tracking the same market segment was significant. As shown, the Russell 1000 Growth returned 42.68% in 2023, compared with 30.03% for the S&P 500 Growth.

What is the average return of the Russell 1000? ›

Annual returns

So far in 2024 (YTD), the Russell 1000 Growth index has returned an average 11.75%.

Is Russell 3000 better than S&P 500? ›

Comparison With the S&P 500. The S&P 500 is another key index, representing the 500 largest U.S. companies. While both are used as benchmarks for the U.S. stock market, the Russell 3000 Index covers a broader scope of the market, including small- and mid-cap companies, thus offering more comprehensive exposure.

Is Growth Investing better than value investing? ›

Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.

Is growth or value better now? ›

Value and growth have each outperformed the other over certain periods. There's been a steep divergence between growth and value in recent years, but growth's steep drawdowns in 2022 have narrowed that gap.

Do value or growth stocks do better in inflation? ›

Inflation tends to hurt growth stocks, and they often do poorly in high interest rate environments. These differences suggest that value stocks may be a better fit than growth stocks for someone with a lower risk tolerance, and their prices will be less volatile.


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