In the style classification of funds, they are often divided into "value style" and "growth style". In the eyes of many investors, "value style" means buying large cap stocks and blue chip stocks, while "growth style" means engaging in small and medium-sized entrepreneurship. In fact, this is a one-sided understanding of these two investment methods, just some superficial things. Both value investing and growth investing have profound theoretical connotations.
Simply put, value investing is buying when the price is below its intrinsic value, and selling when the price returns to fully reflect the value, in order to make a profit. Growth investment refers to buying in the belief that the future value of a company can grow rapidly, and selling it after a significant increase in future prices, in order to make a profit.
These two investment methods differ in the following aspects:
1. Different investment logic
The logic of value investing is to buy when undervalued and sell when the value returns. The logic of growth investment is the rapid growth of enterprises.
2. Different focus points
Value investing focuses on the present, that is, the intrinsic value of the enterprise at present. Growth investment focuses on the future, predicting the rapid growth of a company's value in the future.
3. Different requirements for valuation
Value investing emphasizes underestimation and values safety when buying. Growth investment emphasizes "growth" and does not have deliberate requirements for valuation. Even if it is currently overvalued, as long as the growth potential is clear enough, it can become an investment target.
4. Different requirements for the quality of investment targets
Value investing emphasizes underestimation and does not have special requirements for the quality of the company. Even if the quality of the company is average, as long as the price is sufficiently undervalued, profits can still be made. Growth investment requires high investment targets and must have high growth potential.
5. The conditions for selling are different
Value investing believes that if the price of a stock reflects the price of a company, it should be sold. Whether the company still has high growth potential is the only basis for growth investors to decide whether to sell.
6. The probability of success varies
One is to see the present clearly, and the other is to focus on the future. Undoubtedly, it is more difficult to foresee the future than to see the present clearly. Therefore, the success rate of growth investments will be lower, but once successful, the returns may be higher.
From the above analysis, it can be seen that the understanding that value investing is buying blue chip stocks and growth investing is engaging in small and medium-sized entrepreneurship is one-sided. Stocks of small and medium-sized enterprises meet the criteria of being undervalued in value investing and can still be used for value investing; Blue chip stocks that meet the requirements for future growth determination can also be included as targets for growth investment.
These two investment theories are not incompatible. In an interview with China Fund News, Chen Guangming, Chairman of Ruiyuan Fund, reviewed in detail how he shifted from deep value investment to growth value investment in the article "Unveiling Chen Guangming's 20-year Investment Journey for the First Time: How to Be a Friend of Time on the Long Road of Value Investment".
Chen Guangming said: Due to the special national conditions, some theories should not be completely copied in the A-share market. For example, in value investing, on the one hand, there are very few companies that are absolutely undervalued, making it difficult to find suitable investment targets; On the other hand, undervalued companies often have various problems. Therefore, making deep value investments in A-shares also carries certain risks. Some companies have undervalued stocks for several years without seeing a return in value, and instead, due to their own problems, their net assets have been decreasing. This will seriously hinder the return of company value, and the longer the time, the smaller the space for realization, and the worse the return. So after 2010, he gradually shifted from deep value investment to growth value investment, from simply undervalued companies to seeking excellent companies and accompanying their growth.
Chen Guangming believes that in value investing in China, the real way to gain substantial returns is not by buying value stocks, but by buying high-quality growth stocks. Growth is the most core indicator of value investing, and only by buying truly super growth stocks can long-term excess returns be achieved.
Whether it's value investing or growth investing, one thing is the same, which is that it takes time. Because the value growth of a company takes a long time, and it also takes a long time for the value to be reflected in the price, it requires sufficient time and patience. This is a very difficult process, and there are not many people who can persevere. Most people tend to deviate from the initial path. So making money has never been an easy thing.
This article is based on the theory of two birds
