Mazor'sEdge

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

See the complete Lessons From Warren Buffett series

© 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.

Investors often seek to buy great companies at bargain prices, but Warren Buffett warns against being overly focused on price. He believes that it’s more important to recognize the quality of a business than to worry about paying slightly more than what seems ideal.

At the 1997 Berkshire Hathaway Annual Meeting, Buffett shared that his philosophy had evolved over time: “If you’re sure about a business being wonderful, it’s more important to be certain about the business than to be certain that the price isn’t five or ten percent too high.” He admitted that his earlier obsession with price led to missed opportunities, as he used to be so cautious that even a minor price increase caused hesitation. In hindsight, Buffett acknowledged that this approach was a mistake, emphasizing the importance of prioritizing the value of the business over small differences in price.

Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 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.is no guarantee of future results.

Are some companies so outstanding that it’s worth paying any price for them? This question becomes particularly relevant when stock prices reach stratospheric heights.

In his 1997 Chairman’s Letter to Berkshire Hathaway’s shareholders, Warren Buffett highlighted Coca-Cola and Gillette as “The Inevitables.” He described these companies as ones that “will dominate their fields worldwide for an investment lifetime.” However, during that year’s annual meeting, Buffett clarified that even these “Inevitable” companies can be overpriced.

“You can pay too much, at least in the short run, for businesses like that,” Buffett said at the 1997 Berkshire Hathaway Annual Meeting. He emphasized that no matter how wonderful a business is, there’s always a risk of paying a price so high that it takes years for the business to catch up with the stock. Essentially, the stock can outpace the business itself.

Hear Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 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.