Best Way to Invest Money: Value Investing vs Growth Investing

Best Way to Invest Money: Value Investing vs Growth Investing

Chris Hill: Coming to you from Fool
global headquarters in Alexandria, Virginia. I’m Chris Hill. I’m here with senior analysts Ron Gross
and then Emily Flippen. Thanks for being here! Emily Flippen: Hey!
Ron Gross: Always a pleasure, Chris. Hill: Yankees vs. Red Sox.
Celtics vs. Lakers. Patriots versus everybody. The great
battles of our time. In the investing world, it is growth versus value investing.
Gross: [laughs] That’s a little bit extreme. Hill: We’re going to dig into both of those.
We’re going to be taking your questions. Let’s start with this, Ron, value investing. I think
that’s one of those terms that a lot of people are familiar with, even if they’re not
familiar with what goes into value investing. Gross: Traditional value investing is trying
to find what’s typically a solid company, a strong company, that is undervalued based
on a series of different metrics that we can get into. That will provide the investor with
a market-beating rate of return from today’s price when you are theoretically purchasing
the company. Now, deep value investing, contrasted with traditional, is also known as cigar
butt investing. That’s where you’re typically looking at a troubled company, or a company
that’s not so great, that is also undervalued, but only has one good puff left in it. That can
be dicey. If you call it wrong, that company probably is going to zero. I think for the
most part, we should stick with traditional value investing.
Hill: Alright, we’ll stick to traditional value investing. But first, Emily,
how do you think about growth investing? Flippen: Virtually the opposite of what Ron
just described. What you’re trying to do is you’re trying to find the fresh cigar, let’s say.
It’s companies that have typically either had really great momentum in the past.
A lot of people associate growth investing with momentum investing. Companies that have appreciated
significantly tend to continue to appreciate. But, when we think about growth investing,
it’s usually associated with smaller companies, companies that have a lot of room to grow, and
typically that’s reflected in their revenue growth rate. Gross: I think the
main difference to me when I think of value and growth is the amount
investors are willing to pay today for future earnings growth that may or may not materialize.
Traditional value investors don’t like to pay up that much for a future that is,
by definition, unknown. Growth investors feel a little bit more comfortable paying up for
what they see as a significant growth opportunity into the future.
Hill: Emily, let’s get into some of the metrics for both here. What are a couple of key metrics
that investors should look for when it comes to growth investing?
Flippen: Unlike value investing, which has traditionally been much more focused on metrics,
growth investing is harder to analyze on a metric basis simply because, like Ron mentioned,
you’re trying to predict out what earnings could be in the future. A lot of these companies
are unprofitable. A lot of people will look at metrics like price of sales. A recent metric
which has been really popular over the past year or so, it’s made a resurgence, is something
called the rule of 40. Which is to say that the company’s revenue growth rate in combination
with their net profit margin should add up to 40 or greater. If you have a company that
says it’s growing 80%, but it has negative 20% profit margins, that 60% total meets
the rule of 40. If it’s less than 40%, it’s a company that maybe isn’t growing fast
enough to justify today’s current margins. Hill: Ron, in terms of value investing,
I’m assuming, probably the best-known metric is one to look at, price to earnings?
Gross: Best-known, but perhaps not the best one. Value investors are typically focused
on cash flow, specifically free cash flow. Metrics that get at that would be the most ideal,
so price to free cash flow, enterprise value to EBITDA — earnings before interest,
taxes, depreciation and amortization. If you’re going to be focused more on earnings
than cash flow, then price to earnings is fine. It’s a little bit of a quick and dirty metric
that leaves out some key important things, and can sometimes be misleading. But lots
of folks use it. We even talk about it a lot in venues like this because
it’s easy to understand and it’s quick. Hill: Is one of these approaches
better than the other or is it all situational? Is this one of those times where, depending
on where you are in your investing life, depending on your age, depending on your risk
tolerance, one might be better than the other? Or is there a general rule of thumb? On the surface,
it really does seem, Ron, like one of those approaches is going
to be better as you get older. Gross: There are several studies that I can
point to that show that value outperforms growth over a long period of time. Now,
anyone who’s been investing over the last decade will not believe me. And for good reason.
For sure, growth has pounded value over the last decade. Led by FAANG stocks, tech stocks.
It hasn’t really been that much fun to be a value investor. But, again, over long periods
of time, studies do show that it outperforms. I think we’ll come back
to that at some point again. But I think it’s perfectly fine to have a
balance in your portfolio. I’m probably 80% conservatively positioned with value-type stocks,
mature companies, but I also probably own about 20% of high-tech, biotech, in my
portfolio as well, because there are certain industries that I just want to participate in.
At The Fool, we typically focus on companies more than we do so stocks. We try to find
great companies that we want to be owners in. Hill: What do you think, Emily? Flippen: I’m going to be bold and say that
I think growth is probably better to be invested in. That’s easy for me to say, because
I’m young, and I have a long time horizon. And I think if you’re getting older —
Gross: [laughs] What are you saying? Flippen: I’m just saying, if you’re nearing
retirement age, if you plan on needing assets at some point over the next five to 10 years,
immediately, then you should probably not be as heavily invested in growth companies,
you should be in safer investments, maybe less in the market in general. But I do think
that when you look over the course, not just over the past decade, over the course of my life,
so since 1994, if you look at the performance of value versus growth, the only time that
value stocks have outperformed growth was during the Great Recession. We shouldn’t see
periods of 20, 30, 40 years in which growth out-performs value if value is a legitimate
investing practice on its own. I think there’s going to be periods in which value outperforms
growth. But there’s a reason why macro-based hedge funds have performed so poorly as
they have — because you can’t predict when the economy is going to turn. So, when push comes
to shove, I would much rather be invested in growth companies. And whether a long
storm, whether that be the Great Recession, like we saw in 2008, 2009, whether that be the
2001 tech bubble burst, I’d rather weather those storms and get out higher on the end,
than try to predict when those storms are going to happen and move all of my stocks
into value stocks only to be worse off for it. Hill: We’ve talked some about metrics. Ron, experienced investors know that a lot of this
comes down to emotion, what I like to call the sleep factor. There can absolutely be
older people who have a greater risk tolerance, and they’re going to be more interested in
growth stocks. And on the flip side, there could be younger people who say, “You know
what? I just don’t want to lose my money.” Actually, The Motley Fool just ran a poll
on Twitter recently about, what is your number one goal as an investor? Beating the market,
which is something that we like to look at and measure ourselves against, actually didn’t
come out on top. It was simply making money. And that was something I thought of when
we were getting ready for this event today. I just thought, yeah, I could see that.
For a lot of people, they just don’t want to lose money. So, a value-based approach
is probably going to be better for them. Gross: Yeah. Value investors typically define
risk as the potential for a permanent loss of capital. That speaks to what you were saying.
Warren Buffett’s rule No.1 is, don’t lose money. Rule No. 2 is, look at rule No. 1.
But most folks also think of risk as volatility, which is the movement in stock prices. That’s why
some folks should just not own biotech stocks, because they can jump 10%, 20% in
any given day. Now, that doesn’t equate to risk in my mind, because it doesn’t necessarily
tell you what’s going to happen ultimately with the company, with that stock. It’s just
intra-day, intra-week movements and stock prices. But a lot of folks
don’t like that movement. Flippen: Studies show that investors feel
the pain of losses much more than they feel the happiness associated with gains.
I understand that the poll would probably say that, “Hey, I just don’t want to lose money,
because I feel that a lot more.” I will say that there are lots of opportunities within value and
growth where there’s overlap between the two. I think some growth companies can actually
be great value plays. That’s the idea of investing, is that with some idea of expected growth
in the future, there should be a value today which something is worth. So, we can agree
on that premise. I think the way that value has been posed historically, it’s based off
things that are outdated now, like price to book value. Book value is something that
I don’t think any of us spend tons of time here thinking about, at least not for a lot of
the companies that we’re invested in. So, I think the idea that there’s a difference
between value and growth is kind of outdated within itself. I think we need to
redefine what its value and what its growth. Gross: Yeah, and I think it’s important to
note that even value investors are owning companies that are typically growing. You’re not
typically buying a company that is contracting. That wouldn’t make much sense, unless it was
one of those deep value cigar butt opportunities. So, there’s always growth, it’s just a matter
of how much growth and how much are you willing to pay for that today?
Hill: Alright, we’re going to get to your questions in just a couple of minutes.
Keep those questions coming. Also, if you give us a thumbs up on the video, it helps
other people find the video that we’re doing. If you like what we’re doing, we appreciate it.
Before we get to the stocks, because I know you both have a stock to share for anyone
looking to build a watch list, Ron, let me start with you. How can people, when it comes
to value investing, differentiate between the conundrum, “Is this a value play or a value trap?”
Because we’ve seen well-known companies, certainly this week, we’ve seen
two retailers that are known to a lot of people, Macy’s and Kohl’s, come out with earnings
reports, the stocks are down. These are businesses that people are familiar with. The stocks
are selling off. I’m sure there are some people who look at that and say, “Well, maybe it’s
a buying opportunity. Maybe it’s a value play.” On the flip side, it could be a value trap.
What are one or two things you look at when you’re trying to figure out whether
it’s a trap or an actual value play? Gross: I think if you buy a good company,
a strong company, even if you don’t pay exactly the best price, you’re likely to make money
over time. You might not beat the market, but some folks, as you just mentioned, that’s
not really necessarily their main goal, although theoretically it should be, because otherwise
you could just buy a passive index like the S&P 500. But if you buy a strong company,
even if it’s not the perfect price, you’ll probably be fine.
If you buy a company in the hopes of a turnaround or some kind of a fix or a management change,
something’s not right with this company, if that doesn’t change, or if that doesn’t turn,
that could be a trap, and you could actually lose money, not just make
less than the market as a whole. Hill: Emily, let me ask you a similar question,
although the growth stock version of the question. How do you decide whether a stock that’s on
the rise, that gets labeled as a growth stock, it’s unprofitable, what are you looking at
to determine, this is something where I think that at some point, they’re going to be able
to pull the profit lever? Or, this is a business that’s just losing money hand over fist,
it’s being bid up in price because people think there is a pot of gold at the end of the rainbow,
but I don’t think there is? How do you figure that out? Flippen: It’s actually
similar to what Ron mentioned. Fundamentals matter more than valuation.
You’ll actually see a lot of growth investors looking at stuff like PE ratio for really,
really fast-growing companies, or forward price to sales ratio. It’s not necessarily
the best way to look at them because you have to look at the underlying business. You have
to understand the unit metrics of that business to see if profitability is on the horizon
for them. I think one of the best examples on the public markets today is probably Uber.
Uber is an uber-growth company. I don’t think anyone could say that’s not a growth company.
But the metrics as they stand today on a unit basis, the unit metrics simply aren’t there
for the company. Profitability, at least over the short-term horizon, isn’t there for them.
Now, I have been a staunch sayer of the fact that I think Uber has more pricing power than
they’re expressing right now. But given the fact that they haven’t started to move their
numbers in that direction, you can simply watch the trends of these companies as they
evolve and understand the unit metrics, it makes you realize, this is a growth company
and they’re growing revenues really quickly, but the market’s not going to value them on
a price to sales basis forever. You need to have some earnings, some shareholder return
at some point. Uber just isn’t there yet, unfortunately. Hill: Alright, if you’re building a watch list of stocks, they’re going to give you two.
You can get five more and a free report we’ve got. You can go to —
for YouTube. Yes, we did think this one through. Get a free report,
five stocks for the next gen revolution. Emily, let me start with you. For someone
building a watch list, what is a growth stock they can put on their watch list?
Flippen: This is a growth company. It’s called Bilibili, ticker BILI. It’s a Chinese internet
streaming company, gaming. They’re often called the YouTube of China, although there are lots
of YouTubes of China, so it’s not a one-to-one comparison. It’s a really exciting growth
company, in my opinion, because it’s focused on a very niche audience, Generation Z in China.
Chinese companies have been beaten down so horribly. I know if this was a U.S.-based
company, in terms of valuation, we’d see a much higher price tag on the company than
we see today. But for somebody who does have a long-term time horizon, does have the ability
to handle the volatility that inevitably comes with investing in Chinese companies right now,
Bilibili is a really exciting company. They just reported their quarterly earnings
a few days ago. They had 72% year over year growth rate, negative 22% net income margin.
It does pass that rule of 40. Admittedly, for them right now, the focus is on just getting
paying subscribers. Their margins have increased substantially as they’ve converted free users
to paying subscribers. You have to take a special test, and they’re very selective about
the way that they allow you to be a member of the community. I really like that aspect
of the business. Without dragging on too much, I think it’s an exciting company.
I think it’s going to be extremely volatile, especially given the fact that it’s in China.
But it is a growing company, trading at actually a pretty reasonable valuation today.
Hill: Alright, Ron, a value stock for anyone looking to build a watch list.
Gross: Following a 10-year bull market, it’s tough to find value investing. It’s no lie.
I’ll hit you one quick, one of those good, solid companies that won’t be a trap,
which is Berkshire Hathaway. Relatively obvious. BRKB. $128 billion of cash to deploy. I think
we’ll mostly see them end up buying their own stock back. It is an insurance company,
so I will talk book value just this one time. 1.3X book value. I think
Berkshire is a good stock right here. Now, a little bit more interesting, one with
a little bit more hair on it is Dave & Buster’s, ticker symbol PLAY. It’s a restaurant and
arcade company. 133 locations. The stock got crushed in June and then a bit again in September
after a weak earnings, report two weak earnings reports. Shares are actually down 9% on the year.
As we all know, this is a very strong stock market year, so significant underperformance.
Investors are rightly focused on negative comp sales, lowered guidance.
But, results, in my opinion, are actually not that bad. Total revenues for the latest quarter up 7%.
Earnings per share up 7%. Number of stores increased 11. But, again, the big problem,
comp sales are falling. You don’t want to see that. You have to see that reverse.
They are returning capital to shareholders. They repurchased 3.4 million shares recently.
They increased their dividend by 7%. You get a 1.6% yield at that new rate. Not too shabby.
So now, what are they doing? They’re taking steps to improve results. They’re remodeling
stores. They’re cutting costs. They’re on track to open another 15 stores in fiscal 2019.
New initiatives are going to take time, but at 12.5X earnings, a PE ratio of 12.5X,
I can be patient there. That’s a pretty cheap valuation, assuming that they turned things
and this doesn’t become a trap. Keep an eye on the balance sheet. A fair amount of debt.
But if they fix the problem, I think we have 40% to 50% upside here.
Hill: It doesn’t show up on the balance sheet, but I will say that the popcorn chicken at
Dave & Buster’s is addictively tasty. Gross: [laughs] Delicious.
Hill: Let’s get to the questions that are coming in from the folks who are watching.
Ronnie asks, “I’ve heard the phrase falling knife thrown around with value investing.
What exactly does that mean?” Gross: It’s all investing. When a stock is
plummeting, you have to be careful not to catch a falling knife. Sometimes a falling
stock is a great opportunity to buy a company cheaper than it was trading at the day before.
Sometimes it’s an indication of real problems. You have to do the work,
you have to do the research to figure it out. Hill: RJM asks, for you, Emily, “What do you
think of Uber as a great growth stock for the next five, 10, even 15 years?” I think
based on your earlier comments, you’re maybe not ready to put it in the great
growth stock category just yet. Flippen: There are growth stocks that I like
better, and there are a lot of reasons to dislike Uber, especially at today’s prices.
I do think there’s probably more downside left in Uber. There’s a lot of legal battles
that are fighting against it right now. But I said it before, and I think David Gardner
here at The Fool calls it the snap test. If you were to snap your fingers and make a company
disappear, would you notice? I’ve never met a company that has passed the snap test as
well as Uber passes the snap test. Now, granted, we have Lyft. But the thing about Lyft is,
it doesn’t have the scale that Uber has. You would definitely notice an increase in prices
if Uber were to suddenly go away, and Lyft could essentially charge whatever they want to.
I think the fact that we’re an oligopoly right now, they’re still working pricing,
so we’re really seeing an unprofitable company right now that really has no plans to be profitable,
I’d say wait for the time being. I do think there’s potential for Uber and Lyft, both
of them, to have a bit more pricing power, hopefully turn themselves into profitability.
But right now, they’re just not there. Although I don’t want to completely hate on them,
because I do think that there’s an opportunity there. We’re just not there yet.
Hill: Duane and James both asking about Shopify. What are your thoughts
on Shopify? Is this a good growth stock? Flippen: Yes, it’s a great growth stock.
It has proven itself over the past year or two as being one of our best growth stocks.
I’m actually going through the process of re-evaluating the stocks that we have in Blast Off 2019.
That is one of those companies. And the question we’re asking ourselves is, do you think Shopify
has the same growth potential today that it did a year ago? I don’t have a full answer
for you yet. But I will say that I feel confident in the business model that Shopify has,
and the fact that we are seeing third-party sellers leave platforms like Amazon. Nike recently
was a brand that got big enough, they don’t need Amazon. Their trial with them ended,
and they’re directing people to their own platforms. I think, as brands develop, and
as Shopify continues to integrate their processes in such a way that you as a consumer notice
no difference in ordering something off a Shopify platform versus ordering on Amazon,
that’s a big opportunity for them. I think when you look at a company that’s grown as
much as Shopify has, it’s easy for us to say that it’s impossible for it to 10X.
But the fact is, is that if they’ve proven themselves and they’ve proven the value of the platform,
there’s no reason why they can’t. So I tend to lean towards them actually being a great
growth company. It’s proven itself as such thus far. Gross: That’s one of those companies that even this value investor would add to.
I don’t own that one specifically, but I would. Hill: Lori asks, “When you have limited money
sitting around, is it better to buy one stock or small numbers of shares of multiple stocks,
then potentially adding to positions down the road?” Certainly, it’s cheaper to buy
multiple stocks with Schwab and Ameritrade and pretty much every online
broker cutting commissions to zero. Gross: For sure, it’s great for the consumer,
for the investor. I’d like to see all portfolios be somewhat diversified. I’m a big fan of
buying an index fund, perhaps, as your first investment so you get instantly diversified
across 500 companies, for example, if you buy an S&P 500 ETF. Then you can just start
to buy your next company, your next company, your next company. Or, you can take a little
nibbles in several. Personally, it doesn’t matter to me. What matters to me the most
is getting your capital invested as early as you can and sticking with it consistently.
Hill: JL asks, “Do you have any interest in growth stocks with exposure to the cloud?”
Gross: We have a ton around here. Emily? Flippen: It’s going to be impossible to find
a growth company that’s really hot in the market today that doesn’t have some form of
cloud exposure. I think what’s important to look at when you’re looking at cloud-based
companies is looking at cloud native companies. A company that we really liked here at
The Motley Fool is Datadog. It’s a relatively recent recommendation. They have a cloud native
platform. While there’s lots of competition in this space — New Relic is obviously another
company that’s really strong. I mean, it’s a legacy system, but they’ve also made a great
name for themselves. Datadog continues to prove that the value that’s associated
with having a cloud native platform, especially as it goes to growth companies, is extremely
important. When we look back, we look at the performance of growth companies versus value
companies, part of the reason why growth stocks have performed so well is because they’ve
been quick to take up new technologies. The importance of cloud, as we’re seeing with
the developments that we see today, I mean, with Google in gaming, and cloud-based gaming,
for instance, it seems like everything is moving to the cloud. So I think it’s important
for any growth company you have to realize how they are building, or not building,
off of the cloud environment. Gross: Amazon and Microsoft, two of the biggest
players in the cloud. Great stocks to own. Some lesser-known stocks, maybe,
Zendesk, HubSpot. Lots of great companies. These companies have had quite a run.
They’ve had their pullback, had their run. Not necessarily for the faint of heart from a valuation
perspective, but really great companies. Hill: Cross asks, “Can you talk a little bit
about the famous margin of safety idea? How exactly do you measure it?”
Gross: Margin of safety is, you have a stock price today, you have an opinion of what the
stock is actually worth, the difference between those two things is the margin of safety.
If you take it on a percentage term, it’s what you think the stock price is worth minus
the stock price today, divided by what you think it’s worth. That’s margin of safety
on a percentage basis. It’s an indication of, if you’re wrong, how much safety do you
have? How much leeway do you have in there? Also, when you look at it from the
other way, it’s your upside potential as well. Hill: By the way, whether you’re looking at value
stocks or growth stocks, “What if I’m wrong?” is a great question to ask in any
situation. Essentially, when we’re buying a stock, we’re buying it because we’re expecting
it to go up. Probably worth taking a couple of minutes and saying, “Wait a minute.
What if this goes sideways?” Gross: Position sizing can come into play
there too. The future is truly unknown, but you still want to take a chance. You can
do so, but keep it a small allocation in your portfolio. Hill: [Inure] asks, “Are there growth stocks that pay good dividends? Should growth
companies be paying dividends?” Flippen: I’ve been ready for this one, Chris!
Gross: [laughs] Are you limbering up? Hill: Sit back, get comfortable.
Flippen: I’ve talked about this company on livestreams before, I believe. I talk about
this company a lot because I work on a marijuana service here. A lot of people are interested
in Canopy Growth, which is one of the largest Canadian cannabis companies. The way cannabis
companies have traded, so volatile. We saw the huge pullback last week, today they’re
up on potential U.S. approval, in the House of Representatives at least. Canopy Growth
has exposure through a great dividend-paying company called Constellation Brands. They’re a wine,
liquor, beer company. They pay a steady dividend. It’s a relatively low yield, and
has great growth associated with their exposure to Canopy Growth. Now, that has dragged their
stock price down. The underlying business has actually been pretty OK for them in terms
of their alcohol business, their beer business, especially. But the Canopy Growth business
has dragged them down. But I think it’s a great company in the sense that you have a
stable underlying business with exposure to the upside of the cannabis industry. That’s a
great way to get exposure. It pays a steady dividend. I think the reason why you don’t
see more growth companies paying dividends is because they simply don’t have capital.
If they’re a growth company, what they’re doing is reinvesting in their own growth.
That’s how they continue to grow. If they’re giving dividends back
to shareholders, they simply can’t do that. Gross: As an investor, if you own a high-growth
company, you theoretically don’t want them to pay a dividend. As long as they have reinvestment
opportunities within their company, you want them to put that to work with within the business.
As companies get more mature and the growth opportunities aren’t as significant, that’s typically
when you start to see companies pay dividends. But those companies are still growing.
The dividend aristocrats of the S&P 500 are huge companies that still have growth
potential, but they also have enough money to pay a dividend.
Hill: One commenter asks, “What do you do when a stock you own has gone on a crazy run
like Shopify? Do you buy more, or do you sell?” It’s a good problem to have, when you have
a stock that has gone on a great run. Flippen: I think there’s a medium there.
I think hold is an option. I definitely don’t like to sell companies that are on great runs.
Typically, the company that increases 100% is the one that’s most likely to continue
to increase. I think if you’re trying to time the top for companies, whether that ends up
being a top for Shopify, or just half of what it ends up going into three years from now,
who knows? But, the idea that you’d suddenly sell something just because
it’s appreciated I think is a little bit misguided. Gross: That’s one of the reasons I like value
investing. It helps me determine under certain circumstances what I think a company could
be worth. And if the company reaches that level, then perhaps the return potential going
forward isn’t as strong as it once was, and I would either sell the stock or pare it back,
understanding that valuation techniques are inherently wrong and can be misleading.
You’ve got to be a bit careful there. Hill: Carl asks, “Why are stock splits so
out of favor?” I have that question as well. There was a good stretch of time where stock
splits were very much in favor. They were exciting, even though it doesn’t change the
underlying value of the company or your stock. But let’s face it, more shares are fun.
It’s just more fun to have more shares, Ron! Gross: [laughs] OK, that’s fair. But as you said,
it doesn’t do anything except increase liquidity. Most of these companies are plenty
liquid enough. They don’t need to do that. In the age where you can actually buy fractional
shares more and more, it doesn’t necessarily matter if a company is trading at $1,000 per
share, because you can still participate. Hill: Linus asks, “It seems like all growth
stocks have been pointing to huge total addressable markets to justify their valuations. How do
you separate the wheat from the chaff?” Greer: Yeah, how?
Hill: It’s a great question, Linus, so thank you for that. He’s absolutely right, Emily.
It seems like every growth company, particularly the unprofitable ones, on their quarterly
calls, are coming out and saying, “Boy, look at this industry we’re in. Look at the markets
we’re expanding into. Once we hit the profit levels, this is going to be amazing.”
Flippen: I love this question because I actually have a little test I do. If I hear any management
say, “We think our industry is a $50 billion industry, and if we get just 10% of that,
we’ll be a $5 billion company,” it’s an immediate no for me, Chris. What that says is that you’re
depending on reaching a large market, and you have no strategy for doing such,
other than the idea that a rising tide will lift your boat. Now, trust me, you need to build
a good boat for that to be the case. Your boat needs to not have giant holes in it.
[laughs] So, that’s an immediate cut-off for me. If somebody’s only pointing to a large market
and has no clear strategy to get there, it’s a no. So, apart from them
just coming out saying that — and trust me, companies have said
that before — what you would do is just look at that clear strategy. Figure out how they’re
going to tap into that market. Ask yourself, “Do I actually believe what management projects
to be their total size?” Some companies will go out with crazy sizes. They’ll be a cloud-based
security solutions company that has three customers in California, and they’ll be like,
“The entire worldwide internet economy is … ” I love that, the economy of stuff. So,
there’s lots of ways that they can define their addressable market. Be sure it’s something
that makes sense to you, and do a little bit of your own research on the side.
Hill: Lori asks, “Emily, do is still like Zynga?” Flippen: I do still like
Zynga. We were actually having a conversation today about our members,
and what stocks they favorited. Zynga is one of the most favorited stocks that we have
right now. I actually think that’s because the share price is so low. I think it’s because
people feel like it’s a value company, or it’s a company that’s accessible to them.
It’s a company that we talked about a little bit when Ron and I came on YouTube Live and
we talked about cheap stocks. Zynga to me is a really interesting turnaround story.
People associate it with the old-school Farmville games on Facebook. They’ve actually done a
really great job of reinvigorating their lineup with new mobile games. I think mobile gaming
is probably going to be a really big industry in the future. And I think Zynga is actually
really competitively positioned. So, yeah, I’m still a fan. Hill: Last question for you, Ron. Lykera asks, “Would you recommend investing now or
waiting to start investing until next year?” Lykera is thinking back to the end of 2018,
where December was a brutal month. Gross: My answer will always be now.
Always invest now. Don’t wait. Hopefully, you’re a consistent investor that will put money
into the market over long periods of time regularly. You’ll buy when things are high,
you’ll buy when things are low, but you’ll keep buying, and in the end, you’re going
to be just fine over a long period of time. Hill: Alright, we’re going to wrap up there. Ron Gross,
Emily Flippen, thank you so much for being here! Thank you so much for watching!
Again, thanks for giving us a thumbs up. It really does help other people find the videos
that we do. If you like what we’re doing, absolutely hit the subscribe button so you
don’t miss anything we do here at The Motley Fool. Again, if you’re looking for five additional
stocks to be part of the next gen revolution, go to and check out that free report.
Thanks again for watching! I’m Chris Hill. We’ll see you next time.

33 thoughts on “Best Way to Invest Money: Value Investing vs Growth Investing

  1. Listening to Kyle bass make me not want to invest in any chinese companies. I do my own research but he makes some great points that you cant overlook.

  2. Great talk I prefer growth stocks myself, but Iโ€™d have to agree with you over the long term value will outperform there will be a shift

  3. Hereโ€™s $25 to start investing on Stash. You can invest in industries like legal marijuana, technology, and more with just $5 at a time. Use my link to get a $25 bonus:

  4. She speaks too fast. It's like the legal part of radio publicity. At least for me that English it's my second language. But very bright though

  5. I try not to get distracted by the value or growth debate. I think it pays to invest in companies with strong moats and which will be much bigger years from now.

  6. All investing is "value investing." The investor will simply earn the rate of return that the company produces, net of any over-valuation or under-valuation that the market has applied to the price. Finding that over/under is the game. If you track any stock, ANY STOCK, and look at its earnings over time you will see the price follow those earnings. If a company is not profitable, or has a short track record, you are making a call on business model and management. That is a viable strategy in aggregate, but requires a lot of guessing and wishing. What is an easy way to invest is to look at companies with long track records and consistent earnings. If you buy it at its average valuation over that time period, you should earn its business return in the future.

    Remember that if a company produces a 5% annual growth in cash flow, and pays out a 5% dividend, you as the investor will earn about 10% annually if you own the entire business and pay yourself that dividend and count the growth in equity value on your personal statement. If someone offers to buy this company from you that implies a 4% dividend and the same growth rate, you can sell and stand to make an extra 20% (the overvaluation).

  7. What do u think of the Cheese Cake factory Stock ? Seems interesting. Nice Dividend and a lot of insider buying recently i believe.

  8. Great short informative video covering some of the basics. I like that you suggested some stocks that you like. I like a lot of cloud growth stocks and will apply the 40 rule on each to see where they stand.
    I've tried value before and have done much better with growth stocks the last couple years.

    As far as timing goes:
    I would say we're due for a correction around January but won't be a major one unless the Fed starts raising rates again. And I don't believe they will start raising rates but it all depends on the data they use, so that's the main reason to keep informed on the general economy. This economy is good but not strong enough to fight the Fed anymore, which is why we saw such a big dip last December.

  9. This channel is so much better and deserves way more views than some of the other financial channels out there. Thank you for this info.

  10. Emily, i had to skip your part. If you're choosing to do this in the long run you should slow down. It's like trying to win an argument in middle school. You're communicating to the world, you're transferring information you can't be going 1000 miles an hour like this. I hope you watch and listen to yourself compared to the experienced gentlemen. It may be nerves, but learn to pace your speech. It's stressful listening to you.

  11. Hi Emily. You stole the show as always. Thanks for your time. Quick question. Am a UK ๐Ÿ‡ฌ๐Ÿ‡ง investor. Can you please recommend couple of UK stocks and do you think ๐Ÿค” can we take a currency risk by investing in different countries ??

  12. This chick is so on top of things. I really like her.
    On the other hand the old man. "Dave and Buster's " really dude ??? Lol

  13. I just interviewed a well known value investor, Vitaliy Katsenelson about VI, investment process, etc. You guys might find it interesting:

  14. Cigar butt investing is iROBT; itโ€™s dicy because of the competition, quality of product, and the political entanglement its in.

  15. I've been using vanguard for some time and my ira is with them. I've been using robinhood as my non-tax account – is there any reason to use some other brokerage? does legacy play a role in this decision?

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