The question of "growth" versus "value" is one of the most commonly debated topics in investing.
The value side has a lot of outspoken defenders – and it's easy to get behind. After all, most people understand the importance of "buy low and sell high."
But here's the thing... if your ultimate goal is to make money, value doesn't matter at all.
The way to make serious money as an investor is always growth. It's the strongest tailwind in the market. And you might be surprised to hear it, but it's the path to potentially huge outperformance – even when the broad market is down.
Let me explain...
Generally, most folks identify as value investors. Though you can define "value" in many different ways, let's keep things simple and define it as a stock that's cheap relative to its overall peer group.
During the early days of investing legend Warren Buffett's career – and well before the Internet – you could find companies truly trading for 10 cents on the dollar.
Today, that's not the case. With Bloomberg at our fingertips, we can access almost any piece of financial data in milliseconds. As a result, it's impossible to find truly undiscovered value opportunities in the market. The kinds of opportunities Buffett built his career and reputation on don't exist anymore.
In fact, I'd go so far as to argue that the traditional value investing on which Buffett built his reputation is dead.
It's been dead for quite some time, actually. Even Buffett would probably agree.
Having said that, value opportunities do still exist. But they're rare, and more often than not, they're illiquid... or they're fake values (i.e., "value traps").
As a result, for the individual investor, great value investing opportunities will likely never be available again. Even when you think you may have found one, the stock is often cheap for a reason...
Stocks don't get cheap because the company is firing on all cylinders. Instead, they're almost always cheap because they are losers and aren't executing properly.
The most dangerous strategy for investors is to aim for the "middle" – buying $1 worth of assets for $0.30 or so. This is where you appear to find good values, but you aren't actually getting a bargain. More often than not, these stocks go to 10 cents on the dollar before they ever move higher – if they move higher at all.
Now, you can buy a stock for 10 cents on the dollar. If it closes the gap, you'll make 900%.
The problem is that in today's market, again, these stocks don't exist like they used to... And the ones that do are more likely to burn you. Usually, these kinds of stocks will go to $0, and you'll lose all your money.
Stocks trading at 50 cents on the dollar are easier to find – and less likely to go to $0. If they close the gap, you'll double your money – certainly nothing to sneeze at.
But if you're looking for real multibagger potential, look no further than growth stocks. If a company grows its earnings per share from $1 to $5, its shares are likely to go up 1,000% or more. And there are a lot more companies with this kind of growth potential in the market today – making them a lot easier to find than value stocks.
Growth is great... But we want extreme growth. It's the strongest tailwind in the market.
Value investors make one final argument for their strategy...
The popular perception is that over time, value outperforms growth. This is true – if you're looking at a vast group of stocks. So value investors end up focusing heavily on the performance of the broad market... If the market is down, they believe growth can't possibly outperform value.
But if you're focused on actually making money, the concept of market rotations is completely irrelevant.
You can always find a handful of growth and value stocks that will outperform the overall market. All you need is a small portfolio of winners.
Great companies with long histories of strong performance and strong positions in their markets will continue to grow... even through the worst economic downturns.
Consider this: In 2008, the S&P 500 Index finished down nearly 40%. But 2008 was a great year for certain stocks...
What did all of these companies have in common? They had good (to great) earnings growth right through the financial crisis.
Over the past five decades, at least 50 stocks have risen 50% or more in any given year – even in the worst bear markets. Typically, those stocks are growth stories.
Find the winners, and you'll make money regardless of what the market is doing.
The value versus growth debate is pointless. If you want to make real money in the market, it's always about growth.
Regards,
Enrique Abeyta
Editor's note: Enrique made money investing through the tech meltdown... 9/11... and the 2008 financial crisis. Now, in a documentary-style video, he's going public with the radical strategy that made his clients millions. He reveals why you only need a portfolio of 10 stocks to succeed in the markets... Plus, you'll learn how you can access his seven "hypergrowth" recommendations – every one of them with at least 500% target upside. Get the full story here.
Further Reading
It goes against everything you might have heard about investing... But Enrique says fundamentals are not what drive stock prices higher. And if you're going to find the market's big winners, you must understand the real forces at work... Learn more here.
"Value traps can punish your portfolio even more than buying a stock that's too expensive in the first place," Kim Iskyan writes. So if you see a stock that looks too cheap to pass up, make sure you answer a few key questions before buying... Read more here.
Finding great businesses with powerful growth potential can lead to huge gains. And while this company is already leading its industry, its growth phase is just beginning...
OUR GARDENS ARE BLOSSOMING... AND SO IS THIS COMPANY
Today's chart shows a company that benefits from the coronavirus lockdowns...
These days, some folks feel unsafe even going to the grocery store – and the shelves may be empty even if they take the risk. Socialization is also off-limits for many, with strict rules that aim to slow COVID-19's spread. Each of these factors is a tailwind for today's unlikely winner...
Scotts Miracle-Gro (SMG) is an $8 billion gardening company that sells fertilizers, pesticides, and hydroponics equipment for raising plants indoors. Whether you're trying to grow your own vegetables or simply want to pass some lockdown time beautifying your yard, Scotts Miracle-Gro has many leading brands to choose from. And sales are booming... hitting $1.4 billion in the most recent quarter, up 16% year over year.
Over the past year, SMG shares have shot up about 60%... and they just hit a new all-time high. With folks stuck at home for the rest of the spring, expect them to keep snapping up gardening supplies...
