Value plus Growth
Warren Buffett has been a legendary in investing, and most of the time, people characterized him as a value investor in which contrary to the popular belief, he combines the value investing together with growth investing. Buffett implies both of the combines value and growth investing strategies to earn high returns. Value investing usually relate to someone invest when the stock has low P/E or M/B ratio, or even purchase stocks after the market price has fallen substancially. They presumably to understand the business they investing and expect the price to recover. Meanwhile, growth investing is by estimating a company future earning prospect and good management skills possess by a company.
It is impossible to duplicate Buffett’s track record but over the years, he has provided an extensive spoken material and writing on his ideas and principles. Though cannot duplicate his success, at least we will be able to learn from his method and improve ourselves.
Implementing Value and Growth
To having implement Buffett style of investing, you can start by analyzing these two steps: Downside risk and growth potential. Often, low P/E metric provide a very good measurement in having small downside risk of losing your investment. Secondly, the potential growth of the stocks by computing its intrinsic value and margin of safety. As before, you should only buy a stock when the margin of safety is high, since not all your investment will turn out to be a wonderful investment, that is why you should protect yourselves by taking a low downside risk.
It is important to realize that low downside risk is very important in protecting yourselves. At least, the two steps f Buffett practices can be directly linked well together. In practical, Buffett always invest only in his circle of competence, by using the two steps, you need to compute the intrinsic value by require a reliable earning forecast and try to avoid high tech companies to lower your downside risk as high tech companies usually overvalued thus is hard to find it with a high margin of safety. in general, if you are to invest in Buffett style of investing, you probably better off looking in traditional industries.
The criterion from value investing is to invest with low downside risk, if it fulfill, then you should consider its growth in earnings to implement a value plus growth strategy. Stock analysis teaches us to invest smart by focusing on value investing which is by the past record and growth investing which is by the future prospect. With these value, you will become a more intelligent investor.