Feb 13 in General discussion
Value VS Growth
After reading Benjamin Graham’s “The Intelligent Investor” it helped me understand the modern day debate of “growth” vs “value” stocks.
Many tend to go to highly speculative, highly volatile “growth” stocks which legendary investors, such as Warren Buffet, Peter Lynch and Ben Graham would find equivalent to gambling. They share a common philosophy- to find “value” stocks. Ones that haven’t been covered by Wall Street, and aren’t trading at a premium price to earnings ratio.
They are also wary of not labeling any stocks as value or growth, but rather, learning the intrinsic value of the business.
My key takeaways from the book are-
- Speculative, hotly tipped stocks are similar to a casino, unpredictable returns, you might make 30% in a short span, but might lose that profit in another “gamble” Whereas an valued investment will more often than not result in slow growth but give you the benefits of compound growth over time.
- Diversification can be “diworseification”. You can significantly impact your upside by overly diversifying and reducing risk. If you are a safe and conservative investor looking to preserve wealth, then diversification makes sense. But for Investors looking to grow their wealth, it doesn’t make much sense to diversify. 6 stocks are all the diversification you need. Bare in mind, Peter Lynch is an exception.
- Conviction and discipline is key. Its better to pay a fair price for a wonderful business, than pay a wonderful price for a fair business. With AI stocks trading at premiums, it is important to keep in mind that a cautious approach makes sense when dealing with potential. Remember that potential is already priced in when dealing with Wall Street Darlings. Trust your conviction and invest with discipline.
- Understand “Mr Market” Take the ups and downs of the market as opportunities. Don’t let emotion drive your investing decisions. Think of Mr Market as a friend with extreme mood swings, one day he will be in a great mood, the other, not so much. Stay the course and don’t let him influence your conviction.
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Value VS Growth
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