Should you invest in growth stocks or value stocks? This common question often fuels debates among TV pundits who argue which category is outperforming the other. However, legendary investor Warren Buffett believes this distinction is irrelevant.
At the 2000 Berkshire Hathaway Annual Meeting, Buffett said, “Growth and value are not two distinct categories of business.” For him, the key is understanding the potential cash a company can generate over time, regardless of whether it’s labeled as a growth or value stock. Growth companies may have the ability to reinvest capital at favorable rates, but ultimately, all investments boil down to one thing—value.
Buffett emphasized that every business is a value proposition. Evaluating a company’s potential for growth and its economic viability are just parts of determining its value. Even a fast-growing, money-losing company requires a value judgment, and investors must weigh how much that growth is worth. For Buffett, growth and value are simply two sides of the same coin.
Buffett’s full explanation
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© 2024 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.