Ben Graham and Warren Buffett, two pioneers of modern investing, did not likely intend there to be such a sharp line between value and growth investing, according to Oaktree Capital Management.
Speaking at the CFA Societies Australian Investment Conference, Howard Marks, Oaktree Capital Management co-chair, said investors should strive for open mindedness and avoid conforming to one form of investing over the other.
This was to not advocate growth over value, but to explore the mindset that would prove most valuable for value investors over the coming decades, regardless of what the market would do in the years just ahead.
“It’s important that all investors recognise that the potential range of outcomes for many of these companies is very wide,” Marks said.
“And that there are considerations with enormous implications for the ultimate value of many companies that do not show up in today’s readily available quantitative data.”
He said determining the appropriateness of the market price of an asset requires deep micro-understanding – making it impossible to “opine on the valuation of a rapidly growing company from 30,000 feet or by applying traditional value parameters to superficial projections”.
Marks said the key to investing was to understand how an equity’s current market price related to the company’s broadly defined intrinsic value, including its prospects.
“Open mindedness is something we strive for, that there should not be such a big distinction between value investing and growth investing,” he said.
According to Marks, value investing did not have to be about low valuation metrics.
“The fact that a security carries a high P/E [profits to earnings] ratio doesn’t mean it’s overpriced,” Marks said.
“The fact that another has a low P/E ratio doesn’t mean it’s a bargain. The range of potential value is extreme and you have to know something about [an equity] before you can make judgments about over and under-pricing.”
Conversely, he said companies with high P/E ratios which grow rapidly off intangibles such as technology could still be analysed through value processes.
“The fact that a company is expected to grow rapidly doesn’t mean it’s unpredictable. The fact that another has a history of steady growth doesn’t mean it can’t run into trouble,” he said.
