“There are two types of people…” are the first six words for many a quip.
My favourite one, by the way, is:
“There are two types of people. Those who can infer…”
(Think about it.)
Such shorthand is great for a gag.
It can sometimes even be helpful.
But only sometimes.
Maybe even rarely.
Are there really ever just two types of people?
Can we really be that easily boxed in, outside the joke version?
“There are two types of people. Those who think I’m funny, and those who are wrong.”
I guess some things in life are binary.
But not many.
And even then, the value comes not from the blanket characterisation, but in understanding the nuance, the differences, and the grey areas.
The exception might often prove the rule, but those exceptions are where the real interest lies.
It’s true, too, in investing.
Is there anything more tired than the ‘value versus growth’ debate?
It’s useless on so many levels.
Firstly, each defies definition, so you end up debating the semantics of that definition, rather than the worth of each approach.
I mean, what is value? Buying businesses for less than they’re worth?
But you reckon any ‘growth’ investors intend to only buy businesses for more than they’re worth?
And what’s growth?
Businesses that are growing?
There aren’t too many value investors filling their boots only with businesses in decline.
And, yes, already you’re thinking ‘yes, but…’
Which is the point.
Such grand characterisations (stereotypes? caricatures?) are about as helpful as modern politics: you can argue for hours, but the whole charade is a waste of my time, and yours.
Most people reading this will consider themselves part of one camp or the other.
And that’s fine.
But, again to invoke my political analogy, once you’ve done that, you stop trying to find the truth, and spend your time defending your turf, no matter what.
Indeed there’s actually a basis for the phenomenon in behavioural psychology: as soon as you question someone else’s view, you are more likely to make them dig in, rather than rationally consider it.
Explains a lot of Australian politics recently, doesn’t it?
And even more of social media.
But — and I need you to stay with me, here — it’s not just ‘them’.
It’s ‘us’, too.
I have a mathematical brain. It’s just how I think. So, when presented with the opportunity to calculate growth rates, ratios and — the holy grail of value investors — discounted cash flows, I was there.
I’m that old that my first efforts in that field were numbers typed into Excel, from hard copy annual reports mailed to me. Yes, this was pre-internet — or at least before companies offered copies of their reports in pdf format.
I had rates, ratios and valuations everywhere.
I knew every number and every calculation for every company I watched.
Until I realised that the result was that, in the words of the famous phrase ‘I knew the price of everything and the value of nothing’.
So I became a growth guy, right?
At least not in the way the word is usually applied.
Forced to choose, I eschew both labels, usually considering myself a ‘quality’ guy.
Sometimes, I buy ‘expensive’ quality — Amazon.com, Inc. (NASDAQ: AMZN) when it wasn’t profitable.
Other times, I buy ‘cheaper’ quality — Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), when it was trading at a big discount to net tangible assets.
Both have done well, since I bought them.
I still own shares of both companies.
Would a value investor have bought Amazon? Maybe. But not many.
Would a growth investor have bought Soul Patts? Maybe. But not likely.
Now, I’m not trying to say I’m some special case, twice as clever as someone who identifies with one camp or the other.
I’m sure there are growth investors with better track records than mine.
And I’m sure there are value investors with better track records than mine.
My point is that the labels, in and of themselves, are all but useless.
And worse than useless are the arguments over which is better.
The value guys almost always want growth in their investments.
The growth guys almost always believe the companies they buy are undervalued by the market.
Yep… it’s an artificial distinction.
(By the way, this is probably the dumbest article to write. At least if I was bagging one camp or the other, I’d have full-throated support of my ‘team’. Criticising both — or at least the extreme ends of both — just doubles the number of people I annoy!)
To be clear, if you’re happily in one of those camps, that’s great.
And it’s just as hard to turn a value investor into a growth one as it is to turn a growth investor into a value one.
My aim isn’t to tell any of you that you’re wrong.
It’s to remind you that, despite the labels, you share more in common than you may like to admit.
And to tell those of you who haven’t yet picked a team, that you really don’t need to.
See, at the end of the day, artificial labels don’t hurt anyone except you.
Instead of wasting time picking, then defending, your turf, I reckon you’re better off understanding how both groups differ — and what they have in common.
Then, apply what you’ve learned, your own way.
And don’t get stuck.
Remember, even Warren Buffett’s style evolved as he learned more, and as his situation evolved.
And, as I said earlier, if you want to pick one word, I’d choose ‘quality’.
As Buffett says. “Time is the friend of the wonderful business, the enemy of the mediocre”.
Because even if you get the price slightly wrong, you’ll still own a great business. Getting the price wrong on a poor business can be kryptonite for your portfolio.